Difference between Zero Rated VAT vs Exempted VAT

Zero Rated vs Exempt VAT

The implementation of VAT is set to be on 1 January 2018, being 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 the Article 45 of Federal Decree-Law Number 8 of 2017, there are 14 goods and services that are subject to zero-rated VAT.

i) 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.

ii) 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 party of its region, which includes services related to such transport, will have zero rates applied on them.

iii) 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.”

iv) 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.

v) 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.

vi) Aircraft and Vessels for Rescue

Aircrafts and vessels that are intended for rescue and assistance by air or sea will have zero rate applied on them.

vii) Supply of Goods and Services Related to the Transfer of Goods or Passengers

The goods and services for consumption on board, 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.

viii) Investment in Precious Metal

The eight on the list is the supply or import of investment precious metals. With accordance to 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.

ix) 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.

x) Charitable Building Supplies

If the buildings are for the purpose of being used by charities, the first supply shall have zero rate applied on them (sale or lease).

xi) 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).

xii) Oil & Gas

Crude oil and natural gas are under zero rate as the number 12 on the list.

xiii) Educational Services

As per the Executive Regulation of this Decree-Law, zero rate 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.

xiv) Healthcare Services

The last on this list is, in accordance with 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

There are only four items that are listed as exempted from VAT as per Article 46 of the Federal Decree-Law Number 8 of 2017:

i) Financial services that are specified in the Executive Regulation of this Decree-Law

ii) Supply of residential buildings through sale or lease, other than that which is zero rated according to Clauses (9) and (11) of Article (45) of this Decree-Law

iii) Supply of bare land

iv) Supply of local passenger transport

SAB is also providing, VAT Return Filing Services, VAT Consultancy, VAT Compliance Review and Tax Consultancy Services and Tax Agent Services in UAE – For more information on tax agent services in Dubai,Contact Us.

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30 thoughts on “Difference between Zero Rated VAT vs Exempted VAT

  • Hi
    I would like an information about VAT.
    I am the owner and director of a RAK offshore company with no accounts in Dubai but only overseas.
    Do i need to register for vat.
    Regards
    Max

  • I own a Medical Centre in Dubai with a annual turnover of more than the stipulated limit. Ours is a LLC with a local as a partner. I understand that Health sector has 0% VAT. Do we need to register for VAT?

  • good morning im working in dental clinic here in rak LLC, my boss ask me to registeer for vat, i understand that health sector has 0% vat. so im confused if do i really neeed to register or no need?

  • we are JAFZA based trading company where we will get orders through online, we split the orders and will place it to different suppliers in India and the supplier will send the goods directly to the buyer in Germany, so we are not importing or exporting any goods through UAE, but we will get the payment from our buyer to our UAE a/c where we will take our commission and send the rest of the payment to suppliers in India,

    In this case whether we need to register for VAT?

  • Business Activity: Salon
    Questions:
    1. Do we need to register for VAT?
    2. Shop Rent: A tenancy contract was signed in September 2017. However, this December month, the real estate has recently sent an addendum stating our existing contract which was renewed three months ago are included in the VAT this year 2017 and upon signing now on the addendum, does this mean we have to pay or issue a cheque the full amount of 5% VAT now regardless that VAT will officially take effect only in January 2018? Is this legal to charge us now for the 5% VAT in 2017 or the 5% VAT will be charged to us only upon renewal by September 2018? Can you please explain further on this?

    Thank you in advance for your prompt reply.

    • 1. Yes, you need to register for VAT if your annual turnover is more than AED 375,000
      2. No, you don’t have to pay 5% for the finance done in 2017. 5% VAT will be charged upon the renewal by september 2018.

      For more queries and questions, contact out VAT experts on accounts@sabauditing.ae
      Thanks

  • Please let me know whether Free zone companies are subject to pay input tax on services they obtain from outside Free zone suppliers, because we are in Sharjah and we give services to Companies in Free zones in UAE.

  • Hi, I have a company in Dubai. Our office rent is AED130,000 per year inclusive 5% Vat. Is there any chance to get the VAT refund? If yes, how it is possible.

  • Hai sir
    Can i add tax for export sales ( if they not submitting their Custom Certificate ).
    and also company vehicle petrol bill tax can clime or not
    sincerely

  • I am currently operating my business from UAE. I have trading business in which Auto spare parts & Components are shipped from China to UK. All my bank transactions are done in UAE. Do I have to register for VAT? Does my business comes under Zero rated?

  • Our customer is a RAK International company (Offshore). They informed me that they do not need to register to UAE VAT. They may voluntary register in the next month but will still be VAT zero rated for Export and Import services. In this case we don’t need to charge them of VAT, right?

    • If you are registered and you have Tax Registration Number (TRN) then you will charge them VAT. Thank you
      Let us know if you need VAT or Accounting Services, we will help you.

  • hi we have a land transportation company in uae we r provinding land transportation services to gcc and locally
    we r already registered for vat i want to know what we have to do whether we are zero rated or exempted and how we will file a tax

  • 1) Is rent of Labour camp(Residence Purpose) subject to VAT??
    2) LLC company partner/manager’s remuneration is subject to VAT as directorship services??

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