VAT Applicability on Different Types of Supply in UAE

Tally Solutions | Updated on: August 25, 2022

In UAE VAT, supplies are broadly classified as taxable supplies, which include zero-rated supplies and exempt supplies. Taxable supplies are those on which a standard rate of VAT at 5% is levied and on zero-rated and exempt supplies, no tax is levied. However, the VAT treatment for zero-rated and exempt supplies are different. To know more, please read Zero-Rated Supplies in UAE VAT.

The applicability and treatment of VAT on supplies differ from each other. There are several factors such as place of supply, the location of the supplier, and location of recipient etc. which are critical in determining the applicability of VAT. On this basis, we have classified supplies into different categories and have detailed applicability of VAT in the following table:

Type of Supply in VAT	Explanation	Taxability	Example
Domestic Taxable Supplies	A VAT registered supplier must charge VAT on all local supplies of goods and services within UAE.VAT collected from the customer is called output tax and it must be reported in the VAT return.	Standard Rate of VAT at 5%	A-One Spare Ltd based in UAE supplies spare parts to a customer who is based in the UAE. Here, VAT at 5% is levied on the supply of spare parts.
Reverse Charge Supplies	Businesses registered in UAE are required to pay VAT on certain notified supplies like import of goods and services from overseas / other VAT implementing GCC States on Reverse Charge basis. In the same tax period, they are allowed to reclaim the VAT as an input tax such that no extra tax is payable / reclaimable for the transaction.	Standard Rate of VAT at 5%	A-One Spare Ltd, a registered dealer in spare parts and accessories in Dubai, imported spare parts worth AED 5500 from Speed Motors Ltd, located in India. Here, A- One Spare Ltd, being a registered importer, is required to pay VAT @ 5% on AED 5500 i.e. AED 275 to the government and claim AED 275 as Input Tax in the same month. As a result, there is no extra tax payable on the transaction.
Zero-rated Supplies	A VAT registered supplier can charge VAT at zero-rate (i.e. charge VAT at 0%) on the supply of certain notified goods and services such as export of goods and services, international transportation services etc.	0% VAT	A-One Spare Ltd, a registered dealer in spare parts and accessories in Dubai exported spare parts to a customer in India. Here, the export of spare parts will be at 0% VAT.
Exempt Supplies	Certain notified goods and services such as financial services, residential buildings, bare land, local passenger transport etc. are exempted from VAT.	Nil	A-One Spare Ltd received local passenger services which is exempted from VAT.
Intra-GCC Supplies - B2B	A supplier registered in UAE is not required to charge VAT on the supply of goods and services to the recipients who are registered in other GCC implementing states. The reason being the place of supply in the above cases is considered to be in the other GCC implementing state.	Nil	A-One Spare Ltd, a registered dealer in spare parts and accessories in Dubai supplied spare parts to a customer registered in Saudi Arabia Here, A-One Spare Ltd is not required to charge and account VAT on supply of spare parts to the Saudi customer.
Intra-GCC Supplies - B2C Â	For a supplier registered in the UAE, supplying goods or services to a recipient who is not registered in another implementing state, VAT at 5% will be applicable. It is applicable only if the value of all the exports made by the supplier from UAE to that implementing state does not exceed the mandatory registration threshold of that implementing state.	Standard Rate of VAT at 5%	A-One Spare Ltd, a registered dealer in spare parts and accessories in Dubai, supplied spare parts to an unregistered customer in Saudi Arabia. Here, the supply of spare parts will attract 5% UAE VAT.
Intra-GCC Supplies - B2C Â	For a supplier registered in the UAE, supplying goods or services to a recipient who is not registered in another implementing state and the value of all the exports made by the supplier from UAE to that implementing state exceeds the mandatory registration threshold of that implementing state, UAE VAT will not be applicable. The reason being, place of supply is considered to be outside the State of UAE. In this case, the Supplier (from UAE) has to register in KSA and charge VAT according to KSA VAT Law.	Nil	A-One Spare Ltd, a registered dealer in spare parts and accessories in Dubai, supplied spare parts to an unregistered customer in Saudi Arabia. Also, the total supplies from A-One Spare Ltd to KSA is more than SAR 375,000 (more than the mandatory registration threshold limit) Here, the supply of spare parts will be considered to be outside UAE VAT and will not attract UAE VAT at 5%. However, A-One Spare Ltd should register under KSA VAT and levy VAT according to KSA VAT Law.