Sunday, the 27th August, Federal Decree-Law Number 8 of 2017 for VAT has been issued by President His Highness Sheikh Khalifa bin Zayed Al Nahyan. With a 5% rate, the UAE has one of the lowest value-added tax (VAT) rates in the world.
The implementation of VAT is already started on 1 January 2018, imposed on certain goods and services. However, the law laid out a couple of exemptions and zero-rated goods and services.
What Does Zero-Rated VAT Mean?
Any goods and services are subject to zero-rated when those are exported to a Gulf Cooperation Council (GCC) country that hasn’t implemented VAT just yet. This includes the passengers and goods that are transported internationally, as well as a transfer that starts or even ends in the UAE or cross any part of its region.
Difference Between Zero-Rated VAT vs Exempted VAT
Simply put, a zero-rated VAT is a supply of goods and services that are taxable but VAT is imposed at 0%. VAT-registered businesses that produce zero-rated supplies/services have the right to claim their input tax deductions that they have obtained in the course of producing the aforementioned taxable supplies. On the other hand, an exempt VAT is the supply of goods or services that are not subjected to any VAT rate.
Good and Services Under Zero Rated Tax
Based on Article 45 of Federal Decree-Law Number 8 of 2017, 14 goods and services are subject to zero-rated VAT.
- Direct or Indirect Exports - The first on the list is the direct or indirect export outside the UAE to states in the GCC that do not implement VAT, as clearly stated in the Executive Regulation of this Decree-Law.
- International Transport - International airfares will be under the zero rate as it is stated that goods and services that are transported internationally starting or ending in the UAE or crossing any part of its region, which includes services related to such transport, will have zero rates applied on them.
- Air Passenger Transport - As mentioned on the third number in Article 45, the transport of air passenger in the country is also included “if it is considered an ‘international carriage’ pursuant to Article (1) of the Warsaw Convention for the Unification of Certain Rules Relating to International Carriage by Air 1929.”
- Supply of Air, Sea and Land Means of Transport - In accordance with the Executive Regulations of this Decree-Law, the supply of air, sea, and land means of transport for the transportation of passengers and goods are also under zero rate.
- Goods and Services Related to the Supply of the Means of Transport - The supply of goods and services for the operation, repair, maintenance, or conversation of the aforementioned means of transport are zero-rated.
- Aircraft and Vessels for Rescue - Aircrafts, and vessels that are intended for rescue and assistance by air or sea will have zero rates applied on them.
- Supply of Goods and Services Related to the Transfer of Goods or Passengers - The goods and services for consumption onboard, or anything at all that is meant to be consumed by any means of transport, any installations, or addition thereto or any other use during transportation shall be included in this application as well.
- Investment in Precious Metal - The eight on the list is the supply or import of investment precious metals. In accordance with the Executive Regulation of this Decree-Law, it will specify the precious metals as well as the basis of the standards by which the aforementioned goods are classified as for investment purposes.
- Sale of the Residential Building - In accordance with the controls specified in the Executive Regulations of this Decree-Law, residential buildings in its first three years of completion, may it be for sale or lease in whole or in part, shall be under zero rate.
- Charitable Building Supplies - If the buildings are the purpose of being used by charities, the first supply shall have zero rates applied to them (sale or lease).
- First Supply for Residential Building - Buildings that are converted from non-residential to residential will be under zero rate as well in its first supply (sale or lease).
- Oil & Gas - Crude oil and natural gas are under zero rate as the number 12 on the list.
- Educational Services - As per the Executive Regulation of this Decree-Law, zero rates shall apply on educational services and related goods and services for nurseries, preschool, elementary education, and higher education institutions that are owned or funded by the federal or local government.
- Healthcare Services - The Executive Regulation of this Decree-Law, the supply of preventive and basic health care services and related goods and services.
Goods and Services Exempted from VAT
Article 46 of the Federal Decree-Law Number 8 of 2017 four items listed as exempt from VAT:
- Financial services that are specified in the Executive Regulation of this Decree-Law
- Supply of residential buildings through sale or lease, other than that which is zero-rated according to Clauses (9), (11) of Article (45) of this Decree-Law
- Bare land supply
- Supply of local passenger transport
It has been discussed before that the implementation of VAT can support the UAE government in its goal to strengthen the economy and enhance the services for the public.
The rest of the countries in the GCC are following the UAE and Saudi in executing the VAT.
For more information regarding VAT or if you need a consultation, please contact us here.