In UAE, VAT is applicable at the rate 5% on supplies of goods and services. It is important to understand that the product and services offered by individual or business will be under the category of standard, zero and exempt VAT rates. Poor undestanding of compliance might face consequences of Non-filing or late filing of VAT return in Dubai and across UAE. There are two sorts of VAT provisions in UAE, taxable and exempted supplies.
Taxable Supplies in UAE
Taxable supplies divided in to 2 sub categories.
1. Standard VAT rated supplies
As per Decree-law, VAT at 5% is applicable on all taxable supplies. The term supply includes all forms of supply made by a registered taxable person for a consideration in the course of business.
2. Zero VAT rated supplies
Zero rated supplies refer to the export of goods and services outside the GCC on which VAT in UAE is charged at Zero rate. In this case, no tax is paid to the credit of Government and moreover, we can enjoy the input VAT credit. According to the Article 45 of Federal Decree-Law Number 8 of 2017, there are 14 products and services that are subject to zero-evaluated VAT in UAE.
Consider the following supplies under zero rated supplies.
- All direct and indirect export of goods and services from UAE to the states in the GCC where VAT is not applicable.
Generally, all exports of goods & services in UAE will be considered as zero rated supplies. However, to qualify a supply as zero-rated, there are set of conditions laid out in UAE executive regulations which are required to be fulfilled for charging zero rate tax. - International and intra-GCC transport
- Air Passenger transport: As per Article 45, the transport of air passenger in the country is also included “if it is considered an ‘international carriage’ as defined in law.
- Supply of transport by means of air, sea and land: In accordance with the Executive Regulations of this Decree-Law, transportation of passengers and goods by way of Air, Sea and Land are also under zero rate.
- Goods and services related to the supply of the means of transport used for the course of export: The supply of goods and services includes operation, repair, maintenance, or conversations of the aforementioned means of transport are covered under zero-rated.
- Rescue of aircraft and vessels: Aircrafts and vessels that are intended to use for rescue and assistance by air or sea will attract zero rate
- Passengers transportation: The goods and services that is meant to be consumed by any means of transport, any installations, or addition thereto or any other use in relation with transportation shall be charged at zero rated.
- Investment in precious metal: In accordance with the executive regulation of the Decree-Law, it will specify the precious metals as well as the basis of the standards by which such goods are classified as for investment purposes.
- Sale of the residential building: As per 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 intended to be used by charities, the first supply shall have zero rate applied on them (sale or lease).
- First supply for residential building: Zero rate will be applicable on Buildings that are converted from non-residential to residential.
- Oil & Gas: As provided in Decree-Law, Crude oil and natural gas are under zero rate.
- Educational services: As per the Decree-Law, zero rate shall be applicable on educational services and related goods and services for institutions that are owned or funded by the federal or local government.
- Healthcare services: The last on this list is, in accordance with Decree-Law, the supply of preventive and basic health care services and related goods and services.
Exempted VAT supplies
By definition, Exempted supplies means goods and services on which VAT is not charged. This means, VAT in UAE is not charged and paid to the Government. In this case, tax on ITC is not utilized and it becomes cost of the goods or services purchased.
For example – raw material acquired at 5% VAT is used for the production of goods and the final goods is exempted under the law, in this case, VAT paid AT 5% on input cannot be claimed as ITC and becomes cost of the product.
List of goods and services which are exempted from VAT (There are only four items that are specified as exempted from VAT in UAE as per Article 46 of the Federal Decree-Law Number 8 of 2017):
- Financial services as specified in the Decree-Law
- Supply of residential buildings through sale or lease, other than that which is covered under zero rated as mentioned above
- Supply of bare land
- Supply of local passenger transport
Out of scope supplies
Certain provisions are not expose to VAT in UAE and in this manner alluded as “Out of Scope” Supplies. Such transactions won’t be accounted for in VAT returns. However, Executive Regulations don’t cover explicitly “Out-of-Scope Supplies”. Instances of couple of such transaction like:
- Supplies made by person in state, where goods / products move from outside UAE to another country.
For example, local Company A sells goods to company B. The goods are shipped directly from China factory to company B’s branch in India. The goods moved from outside UAE to another country, so the supplies of the goods is an out of scope supplies. - Import into designated zone from another country.
- As per Article 51, clause 5 of Cabinet choice No. 52 of 2017, supply of goods / merchandise within same designated zone will be out of scope of VAT, provided goods are not consumed within designated zone.
- Further clause 3 of same Article says where an supply of goods / merchandise are made between two designated zones will be out of scope of VAT in UAE if following conditions are met
- The goods, or any piece of the goods, are not discharged into free flow or modified in any capacity during the transfer.
- The exchange is undertaken as per the guidelines for customs suspension according by the GCC Common Customs Law.
If you are wondering, how to correct your filed VAT return, adjustments, assessment or VAT refund to correct error or omission, Federal Tax Authority (FTA) introduced Voluntary Disclosure Form 211 to correct errors or omission committed in filed VAT return form 201.
This blog post is written by Mr. Taher (Tax Adviser) at Flyingcolour Business Setup, Accounting & VAT Services in Dubai and across UAE. Feel free to call our Tax Advisor for quality consultation relating to your VAT & accounting queries. Please send inquiry to info@flyingcolour.com or or call +971 4 4542366.
