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Zero-Rated and Exempt Supplies Under VAT in UAE

Since the introduction of VAT in UAE, the Federal Tax Authority has made three categories based on the nature of the supplies. These three categories are zero-rated, exempt and standard rated. This article will discuss the zero-rated and exempt categories of supplies as often people get confused about these two. If you have any doubts about the applicability of these two categories, you should always consult the tax consultants in the UAE with Farahat & Co. They can help you identify the same and the implications of the VAT in all kinds of transactions happening in the UAE.

What Kind of Transactions Comes Under Zero-rated and Exempt Supplies Under VAT in the UAE?

The zero-rated VAT applies to the taxable supplies where the applicable VAT is zero per cent. It means that these supplies are taxable, but the applicable rate of VAT is 0% in such categories. The supplier of goods and services who produces the zero-rated and Exempt Supplies in UAE VAT supplies must register their business for VAT with the FTA.

The other general terms and conditions laid down by FTA for VAT apply to them. They must file their returns on the prescribed dates, and they must undergo the process of VAT registration in UAE or other emirates.

As per the Federal Decree-Law (No 8) of 2017 Article no 45, the supplies that have been declared zero-rated for VAT in the UAE are mentioned below -

  1. Healthcare services include primary and preventive healthcare services and related supplies.
  2. All the educational services are zero-rated. It includes the goods and services meant for pre-schools, nurseries, primary school education, and all the higher education that have been owned or are being funded by the federal or local government.
  3. Supply of Crude oil
  4. Supply of Natural gas
  5. Precious metal investments
  6. Residential buildings that have been built within three years may be through leasing or sale of it in part or incomplete.
  7. The building was made for charity purposes, whether through rental or sale.
  8. Commercial buildings are converted to residential properties either through rental or sale.
  9. The goods and services that help transport goods or people by land, air or sea.
  10. Vessels and aircraft that are supposed to help in rescue operations by land or by sea.
  11. The exports of products and services to the countries that are not member states of the GCC countries.

Read More : Your guide to Commercial Activities Certificate under VAT in the UAE

What Kind of Transactions Comes Under the Exempt VAT Category?

Unlike the zero-rated VAT category, VAT exempt category means that the supplies of this category are exempted from VAT. The firms producing this kind of goods and services are exempted from registering from additional taxation under VAT. It also means that they do not have to undergo VAT registration with the FTA, and they are not obliged to file a VAT return at any time.An example of these types of transactions is the rents in Dubai. The rents in Dubai are real estate transactions, exempt from VAT.

A complete list of VAT exempt supplies in the UAE is mentioned below-

  1. The transportations happening within the UAE or the local transportations in the UAE.
  2. Supply of bare lands.
  3. The residential buildings are apart from the ones that have been regarded as zero-rated.
  4. The financial services like the insurance plans, life insurance reinsurance, and everything that is not being done for a discount, explicit fee, commission, rebate, or any other kind of compensation.

Apart from the categories mentioned above, the people who come to UAE as tourists or those who have a tourist visa are exempt from paying VAT.

As per the Federal Tax Authority, the tourists who shop in the stores located in any of the seven emirates of the UAE are eligible to receive eighty-five per cent of the total amount they have paid for VAT.

Common Errors that are made by the VAT Registered Businesses.

Understanding VAT is quite complicated for a common man. one must consult the tax agents in the UAE in case of any doubts or queries related to VAT. The VAT is always calculated on the turnover and not on the profits that a firm accrues. a single mistake in VAT calculations can cause a lot of loss for the firms. It is the responsibility of the VAT registered firm to charge VAT correctly on its products and services.

Some of the most common errors committed by the firms in the UAE for VAT calculations are as follows-

  1. Wrong invoicing- the invoices issued by the VAT registered business must be proper, and all the invoice elements must be there on them.
  2. Not issuing an invoice to the clients- VAT can only be recovered on a proper invoice. VAT cannot be retrieved through order notes or any other documents.
  3. Recovering a VAT cost that is not related to the business- the firms in the UAE must know that they can recover VAT only on the expenses associated with the business for which the firm is registered. All VAT invoices must be issued in the firm’s name and registered address. VAT cannot be recovered on an invoice that some other business has published.
  4. Reverse Charge Mechanism system not being followed- when a firm is buying goods from outside UAE, even when VAT is not charged for the same, the business may have to account for VAT under the reverse charge mechanism. In such cases, the firm must ensure that correct VAT treatments are in place even when the VAT amounts are not appearing on the invoices.

For any help or confusion regarding proper adherence to VAT guidelines, one must consult the tax agents in the UAE for clarifications.

How Farahat & Co. can help you identify the Zero-rated and Exempt Supplies under VAT in the UAE?

Farahat & Co. have a team of experienced and well-trained staff who can help you file your VAT returns. They will sit with you and understand your business before finalizing the category of the goods and services that you are supplying. It will help avoid the unnecessary penalties that might be charged to firms with a zero-rated supply. Failure to comply with the regulations can result in hefty fines and bankruptcy. Therefore, get in touch with us today to know whether you need to register for VAT with FTA and, if yes, how to go about it.

Read More : VAT Treatment for the Supply of Electronic Services in the UAE.

Ervee is a CPA with international experience in Tax and Accounting. He has over 12 years of experience in accounting and bookkeeping and over a year in VAT implementation, registration, and accounting in UAE. He regularly drives out inefficiencies in company operations and loves the challenge of helping clients find additional ways for an easier and improved compliance and verification of transactions.