In the UAE business community, a debate has arisen on the difference between Zero-rated VAT and exempted VAT since the implementation of VAT is set to be on 1 January 2018. The concepts of Zero-rated VAT and exempted VAT hold significant differences. Zero-rated VAT entails the obligation to impose VAT at a 0% rate, while exempted VAT dictates the avoidance of charging any VAT.
This article will delve into the disparity between Zero-rated VAT and exempted VAT, particularly focusing on the goods and services falling within these categories. Now Consultant offers VAT Registration & Consultancy Services, supporting businesses in their growth and progression.
Distinguishing Zero-Rated VAT and Exempted VAT
Zero-rated Value Added Tax (VAT) is applied at a rate of 0% to taxable goods and services. Businesses registered for VAT and involved in providing zero-rated supplies can claim deductions on the input tax incurred during the production of these taxable supplies. Conversely, zero-rated VAT is applicable to the provision of goods or services, not subject to any VAT rate.
VAT Exempted Supplies:
According to Article 46 of Federal Decree-Law Number 8 of 2017, only four items are exempt from VAT:
i) Financial services are included in the Executive Regulation of the above Federal Decree-Law.
ii) The trading or rental of residential structures, except those which specify the criteria for zero-rating under Clauses (9) and (11) of Article (45) of the above Federal Decree-Law.
iii) Transaction of undeveloped land.
iv) Providing services to local passenger transportation.
Zero Rated VAT Supplies
Products and services become eligible for zero-rated VAT when exported to a Gulf Cooperation Council (GCC) member state that still needs to adopt the VAT system. This includes both international passenger and goods transportation, covering journeys that start or end in the UAE or pass through any part of its region.
The following are the fourteen goods and services that are under Zero-Rated tax as per Article 45 of Federal Decree-Law Number 8 of 2017:
1. Direct or Indirect Shipment:
On top of the direct or indirect shipment of goods outside the UAE to GCC nations that have not yet enforced the VAT are zero-rated VAT supplies.
2. Global Transportation:
The zero rate applies to international airfares, as indicated by the provision that goods and services transported internationally, commencing or concluding in the UAE, or traversing any part of its region, including related transport services, will be subject to zero rated.
3. Domestic Air Passenger Transport:
included in Article 45 of the above Federal Law is domestic air passenger transportation, satisfying the conditions for ‘international carriage’ as defined in Article (1) of the Warsaw Convention are part of zero-rated VAT supply
4. Provision of Air, Sea, and Land Transportation:
According to the Executive Regulations of the above Federal Decree-Law, the provision of transportation services through the sea, air, and land for the conveyance of passengers and goods is also included for zero-rated status.
5. Services and Goods Associated with Transport Supply:
The provision of goods and services for the functioning, repair, upkeep, or modification of the mentioned modes of transport is eligible for zero-rated taxation.
6. Aircraft and Vessels for Rescue
Aircraft and vessels designed for air or sea rescue and assistance will be subject to zero-rated taxation.
7. Investment in Precious Metal
There are eight provisions for the supply or import of investment precious metals. The Executive Regulation of this Decree-Law will detail the specific metals and set criteria for their classification for investment purposes.
8. Sale of the Residential Building:
Residential structures completed within their initial three years, whether intended for outright sale or lease in whole or in part, will be liable for zero-rated taxation.
9. Charitable Building Supplies:
In the case where buildings are intended for use by charitable organizations, the initial supply, whether for sale or lease, will be subject to a zero-rated tax.
10. First Supply for Residential Building:
Residential buildings converted from non-residential to residential status will also be subject to a zero-rated tax in their initial supply, whether for sale or lease.
11. Oil & Gas Products:
Crude oil and natural gas are included in the twelfth position on the list and are subject to a zero-rated tax.
12. Education Related-Services:
Zero rates apply to educational-related services and the associated goods and services by education institutions owned or funded by the federal or local government.
13. Healthcare Services:
The last item on the list, according to the Decree-Law’s rules, involves providing basic healthcare services and related goods. Additionally, when exporting goods and services to a Gulf Cooperation Council (GCC) country without VAT, both international passengers and goods, including transfers involving the UAE, qualify for zero-rated Value Added Tax (VAT).
Expert guidance means a lot in the VAT process whether it is zero-rated VAT or exempted VAT in UAE. Now Consultant boasts a team of dynamic VAT specialists ready to assist your business in overcoming potential challenges, including unfamiliarity with VAT rules and regulations, structural and compliance issues, resource constraints, and the absence of a compliant accounting system.
We provide top-notch services, including VAT registration, VAT return filing, and VAT accounting, ensuring your business operates seamlessly within the VAT framework.