What are the key categories of VAT-exempt supplies in the UAE, and how do they differ from zero-rated supplies under the UAE VAT law?

What Are Exempt Supplies In Uae Vat?

According to the definition, tax-exempt supply refers to the “supply of goods or services that are considered consideration when conducting business in the state, unless in accordance with the provisions of the law, otherwise no tax and no input tax can be recovered”. , There are certain exempted goods or services in the UAE’s administrative regulations that are not subject to value-added tax. This means that no value-added tax is charged when these goods or services are provided.

On the other hand, companies that provide these tax-free goods or services will not be required to pay input tax on your purchases. For example, you have paid a 5% value-added tax when purchasing raw materials, and assume that finished goods produced using raw materials are tax-free. Now, you will not be able to claim the 5% input value-added tax of the purchased goods and should be treated as a product cost.

List of duty-free goods and services in the UAE

Broadly speaking, the UAE exempts VAT on the supply of certain financial services, residential buildings, raw space, and local passengers. However, to consider supply that is exempt from VAT, it must meet certain conditions mentioned in the UAE VAT Law and its implementing regulations.

The following is a list of exempted goods and services:

1. Financial Services

The following financial services are tax-exempt products:

One kind. Financial services that are not returned in the form of explicit fees, discounts, commissions and rebates or any similar return are exempt.

b. The issuance, distribution or transfer of ownership of equity securities or debt securities is exempt from the VAT rate.

C. The provision or transfer of ownership of life insurance contracts or the provision of reinsurance of any such contracts are included in the list of exemptions from value-added tax.

It sounds pretty good! But how do I know that an activity or service I provide is a financial service? Is there any definition of financial services?

Yes, the UAE VAT Implementation Regulations does not define what financial services are, but examples of financial services have been listed.

Financial services are services related to currency or currency equivalent transactions and the provision of credit. The exchange of currency issuance, the provision of any loan, advance payment or credit, the operation of any current account, deposit or savings account, etc. are very few examples of financial services.

Please note that not all financial services discussed above are exempt from VAT. If any of these services are performed in return for explicit fees, commissions, discounts and rebates or similar returns for the provision of services, they shall be considered as taxable supplies.

2. Residential buildings

The supply of residential buildings is exempt from VAT, but the following conditions must be met:

Lease for more than 6 months or

b. The tenant of the property is the holder of an ID card issued by the UAE Identity Card Authority

The lease term mentioned above will be determined with reference to the lease term of the contract, including any term resulting from extension of the lease term or renewal of the lease or option.

Here, residential buildings refer to buildings designed for human occupation, including main residences, housing for students or middle school students, armed forces and police, orphanages, nursing homes and nursing homes.

Broadly speaking, all residential buildings within the scope of residential buildings and meeting the above conditions are exempt from value-added tax.

Are there buildings that are not residential?

Yes, all non-residential residences are not considered residential. The following are examples of buildings that are not considered residential:

Any place that is not fixed on the ground and can be moved without damage

Any building used as a hotel, motel, bed and breakfast or hospital, etc.

Serviced apartments provide other services in addition to accommodation

Any building constructed or modified without legal authorization is subject to 5% value-added tax in all the above cases.

In all the above cases, the value-added tax is 5%.

3. Raw space

Here, “bare land” refers to land that is not covered by complete or partially completed buildings or civil engineering.

4. Local passenger service

The supply of local passenger transportation services from one part of the state to another part of the state by land, water or air will be exempted. Vehicles designed or modified for passenger transportation, including taxis, buses, trains, trams, monorails, ferries, taxis, or other similar ships or similar vehicles, are exempt from VAT.

Even helicopters or airplanes designed or modified for passenger transportation in accordance with the Civil Aviation Law are exempt from tax.

However, local passenger transportation services for leisure travel and local passenger transportation services by plane (which constitute “international transportation” as described in the UAE Executive Regulations) will not be exempted and will be subject to a 5% value-added tax.

related articles:-

1. UAE VAT rate

2. Spare parts in UAE VAT

3. The difference between zero rate, tax exemption and out-of-scope supply in UAE VAT

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