VAT FAQs on Zero Rate and Exempt Supplies in UAE

Tally Solutions | Updated on: December 6, 2021

In our previous article, we have learnt the differences between zero rate, exempt and out of scope supplies. In this article, let us answer the FAQs in the minds of taxpayers with regard to zero rate and exempt supplies.

Zero rate supplies

FAQ 1: What are zero rate supplies in UAE?

Answer: Zero rate supplies are taxable supplies for which VAT rate is 0%.

FAQ 2: Should suppliers of zero rate supplies charge VAT in UAE?

Answer:Suppliers of zero rate supplies should not charge VAT, as the rate of VAT on these supplies is 0%.

FAQ 3: If a person makes zero rate supplies, should the person register under UAE VAT?

Answer:Zero rate supplies should be included in calculation of taxable turnover to check whether it exceeds the threshold for registration. A person should register for VAT if his/her taxable turnover exceeds AED 375,000 in a 12-month period or if the person expects the taxable turnover to exceed AED 375,000 in the next 30 days.

However, if a person solely makes zero rate supplies, he/she can seek an exemption from registration. If the person is exempted from registration, he/she is not required to submit regular tax returns and cannot recover input tax on inward supplies.

FAQ 4: Does a registered person who solely makes zero rate supplies need to file tax returns in UAE?

Answer: Even if a person solely makes zero rate supplies, the person has to file tax returns. However, if the person has received an exemption from registration on account of making solely zero rate supplies, the person does not need to file tax returns and cannot recover input tax on the business purchases.

FAQ 5: Which sectors will be zero rated under VAT in UAE?

Answer: VAT will be charged at 0% in the following main categories of supplies:

  • Export of goods and services to outside the GCC
  • International transportation, and related supplies
  • Supplies of certain means of transportation by sea, air and land (such as aircrafts and ships)
  • Certain investment grade precious metals (e.g. gold, silver, of 99% purity)
  • Newly constructed residential properties, that are supplied for the first time within 3 years of their construction
  • Supply of certain education services, and supply of relevant goods and services
  • Supply of certain healthcare services, and supply of relevant goods and services

Exempt supplies

FAQ 1: What are exempt supplies in UAE VAT?

Answer: Exempt supplies are not taxable supplies for the purpose of VAT. VAT is not charged on exempt supplies and the supplier cannot recover VAT paid on expenses incurred in making the exempt supplies.

FAQ 2: If a person makes only exempt supplies, does the person need to register in UAE?

Answer: If a person solely makes exempt supplies, then the person is not required to register under VAT.

FAQ 3: Which sectors will be exempt from VAT in UAE?

Answer: The following categories of supplies will be exempt from VAT:

  • Certain financial services
  • Residential properties
  • Bare land
  • Local passenger transport

FAQ 4: How to recover input tax on expenses incurred to make both taxable and exempt supplies in UAE VAT?

Answer: In certain situations, an expense will relate to both taxable and non-taxable supplies made by a registered person (such as activities of the banking sector). In these cases, the registrant needs to apportion the input tax relating to the expense between taxable and exempt supplies. Input tax can only be recovered on the portion used to make taxable supplies.

FAQ 5: Will goods which are exempt from customs duties also be exempt from VAT?

Answer: This is not necessary. Some goods which are exempt from customs duties will still be subject to VAT.

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