UAE VAT: Standard, Zero-Rated, and Exempt Supplies

Since the introduction of VAT in the UAE, the Federal Tax Authority has made four types of VAT ratings for supplies such as the standard rating at 5%, zero rates, exempt, and out-of-scope supplies. In recent years, accounting firms in the UAE have witnessed many taxpayers getting confused between standard, zero-rated, exempted, and out-of-scope supplies. It is crucial to distinguish between various VAT ratings in the UAE since the VAT returns must divide up the value of each supplier. To determine the rating of the taxable supply your business makes, you might seek the help of tax agents in the UAE. Read ahead to gain a basic understanding of the four types of VAT ratings.

Standard-rated supplies of VAT

According to the UAE VAT legislation, standard-rated supplies are those that are subject to a 5% tax at the time of the supply. The standard rate applies to all supplies traded on the mainland when the supplier and recipient are both located in the UAE (except for zero-rated or exempted supplies). For VAT purposes, any location in the UAE that is not a designated zone is considered the mainland.

For a thorough understanding of the standard-rated VAT supplies in the UAE, take into account the following scenarios:

• A transaction where the goods or services are purchased and delivered within the UAE mainland and the supplier and recipient are both located there.
• A supply of goods moved from the mainland to a UAE-designated zone
• Supply of all services provided in the United Arab Emirates as a whole, including the transfer of services between Designated Zones

Zero-Rated Supplies

In the UAE, zero-rated supplies are those that are subject to a zero percent VAT levy. Depending on the nature of the supply, independent of the goods or services provided, or the specific goods or services which are classified under the zero-rated list, tax is levied here at a zero rate.

In general, all exports from the United Arab Emirates of products and services will be regarded as zero-rated supply. However, there are several requirements outlined in UAE executive rules that must be followed in order to qualify a supply as zero-rated and charge zero rate tax. In order to properly declare zero-rate supplies, you can seek the assistance of tax agents in the UAE. The following supplies are regarded as zero-rated VAT supplies:

• Exports of goods and services to countries outside the implementing states, both direct and indirect
• Exported telecommunications services
• All international transportation services for passengers and goods, as well as all other transportation-related services
• Import and supply of investment precious metals such as gold, silver, and platinum that are tradable in global bullion markets and have a purity of 99 percent or more
• Supply of crude oil and natural gas
• Certain educational services and healthcare services
•  Buildings specifically created to be used by charities

Exempt Supplies of VAT

Exempt Supplies are those that are not subject to value-added tax and for which no input tax may be reclaimed, other than in accordance with the requirements of Federal Decree-Law No. (8) of 2017 on value-added tax. Exempt supplies are any goods sold within the UAE that do not include any VAT, either 0% or 5%.

• Supply of residential buildings through sale or lease, other than that is zero-rated according
• Supply of local passenger transport
• Supply of bare land.

Out-of-Scope Supplies

The supplies that fall outside the UAE's VAT scope are known as out-of-scope supplies. Unlike Standard-rated, zero-rated, and exempt supplies, out-of-scope supplies are not required to be declared in the general VAT returns made for each tax period. Companies that only produce supplies outside of their scope are also exempt from UAE VAT registration. However, if their taxable supplies exceed the voluntary registration threshold of AED 187,500, they may choose to voluntarily register for VAT in the UAE. Get in touch with the top VAT consultants in the UAE to get more information on the topic.

Summary

For companies, it is of utmost importance to properly assess the tax treatment of the supplies they are providing to the customer. It is always advisable to seek help from one of the top accounting and auditing firms in the UAE such as Reyson Badger.  They are a team of professionals who have years of experience in accounting and auditing. Consult with Reyson Badger for top-notch accounting and management solutions.