In the landscape of Value Added Tax (VAT) in the UAE, understanding VAT rates is paramount. However, not all supplies are subject to VAT, as the government has implemented various exemptions to promote economic growth and alleviate the financial burden on certain sectors. The government has categorized supplies into four key VAT ratings with respect to exemptions: the standard, zero-rate, exempt, and out-of-scope supplies.
Instituted by Decree No. 13 of 2016, the Federal Tax Authority (FTA) plays a crucial role in collecting taxes, upholding UAE tax regulations, and allocating funds generated through taxation. Notably, zero-rated VAT involves charging VAT at 0%, while exempt VAT necessitates abstaining from any VAT charges.
To resolve these complexities, businesses can seek guidance from Now Consultants, ensuring a clear grasp of applicable VAT ratings for taxable supplies and mitigating confusion commonly faced by taxpayers.
VAT Rate List In UAE:
1. VAT Standard Rate Supplies
As per UAE VAT regulations, standard-rated supplies in the country incur a 5% tax. This applies to transactions on the mainland involving both the supplier and recipient in the UAE, except for zero-rated or exempt supplies. The mainland, excluding Designated Zones, encompasses all locations in the UAE. To grasp standard-rated VAT supplies in the UAE:
- Sales between a supplier and recipient in the UAE mainland, with consumption also in the mainland.
- Goods transferred from the mainland to a Designated Zone.
- Provision of services throughout the UAE, including service transfers within the same Designated Zone.
2. Zero-Rated Supplies
Zero-rated supplies in the UAE, subject to a 0% tax rate instead of the standard 5%, must be accurately reported in VAT returns.
Examples of such supplies include precious metals, educational and healthcare services, newly constructed residential properties, charitable buildings, conversion of buildings, international transportation, exports, means of transportation, crude oil, natural gas, and specific aircraft or vessels designated for rescue and assistance.
Air passenger transport is zero-rated if it meets the criteria for “international carriage” under the Warsaw Convention.
3. Exempted Supplies
As per Article 45, Federal Decree-Law No. (8) of 2017, the UAE’s Value Added Tax (VAT) law defines Exempt Supplies as transactions not subject to tax, with no recoverable input tax, unless specified by the law. Exempt supplies in the UAE involve trading without any VAT, whether at 0% or 5%.
Examples of exempt supplies include:
- Financial Services
- Supply of Residential Buildings (Excluding those falling under the zero-rated category through sale or lease).
- Supply of Undeveloped Land
- Supply of Domestic Passenger Transport
4. Out-of-Scope VAT Supplies
VAT regulations do not govern out-of-scope supplies in the UAE. Unlike standard-rated, zero-rated, or exempt supplies, reporting out-of-scope supplies in regular VAT returns for each tax period is unnecessary.
Businesses dealing with out-of-scope supplies are not obligated to register for UAE VAT. However, should their taxable supplies exceed the voluntary registration threshold of AED 187,500, they can voluntarily register for VAT in the UAE.
Difference Between Standard, Zero Rated, Exempted, and Out of Scope VAT In UAE:
|Input Tax Recovery
|Zero Rate Supplies
|Supplies are subject to VAT at a rate of 0%.
|Input tax can be reclaimed for supplies utilized in zero-rated transactions.
|Export of goods to non-GCC VAT implementing States, Export of services outside the GCC territory, Supply of precious metals.
|Specifically declared exempt; no VAT should be charged.
|Recovery of input tax is not possible for supplies involving exempt transactions.
|Supply of specific financial services, Supply of bare land, Local passenger transport, Residential buildings sale or lease (excluding zero-rated ones).
|Out of Scope Supplies
|Supplies outside the purview of VAT.
|No input tax recovery as they are beyond VAT’s scope.
|Supplies by unregistered persons, Specific government supplies.
|Standard Rate Supplies
|Charged with a 5% tax at the time of supply.
|Input tax recovery is allowed.
|Sale between UAE mainland entities, Goods transferred to Designated Zone, and Services within the UAE.
In summary, while none of these supplies incur VAT charges, the key difference lies in input tax recovery. Zero-rate supplies allow recovery; exempt supplies don’t, and out-of-scope supplies are entirely exempt from this concept.
Understanding these distinctions is crucial for accurate VAT returns and recovering input tax only for eligible supplies.
What Is The Meaning of 0 VAT?
A 0 VAT, or zero-rated VAT, is applied to goods and services intended for export outside the UAE. This taxation at a 0% rate is contingent upon the submission of official export documents.
What Are Out-of-Scope Supplies In Tax Invoices?
Out-of-scope supplies on tax invoices in the UAE’s Value Added Tax (VAT) system refer to transactions not covered by VAT. This means they are not subject to VAT, and these transactions are usually exempt from the tax, meaning that VAT does not apply to them.
Is Interest a VAT-exempt Supply In UAE?
Yes, interest in conventional finance or its equivalent in Islamic Finance is VAT-exempt in the UAE.
How We Can Help You?
In the context of the article, companies need to thoroughly assess the VAT rates in uae according to supplies, falling into the four categories mentioned above. This understanding of VAT, including exemptions and partial exemptions, is essential for effectively managing financial and tax matters, protecting against potential fines and penalties from the FTA.
To actively manage VAT-related affairs, Now Consultant offers expert consultation services. We offer a diverse array of services encompassing accounting and bookkeeping, VAT services, as well as auditing services. Entrust your VAT matters to Now Consultant for reliable expertise and efficient handling of your financial responsibilities.