VAT Exempt Supplies in UAE
What are Exempt Supplies in UAE VAT?
By definition, exempt supplies refer to 'supply of goods or services for a consideration while conducting business in the State, where no tax is due and no Input Tax may be recovered except according to the provisions of the Decree-Law '.In simple words, there are certain exempted goods or services notified in UAE executive regulations, on which VAT is not levied. This means, on supplying these goods or services, VAT is not charged.
On the other hand, businesses supplying these exempted goods or services will not be allowed to claim the input tax paid on your purchases. For example, you have paid VAT at 5% on purchase of raw materials and assume, finished goods produced using raw material is exempted. Now, you will be not allowed to claim the 5% Input VAT paid on your purchases and it should be treated as a cost of the product.
Exempted goods and services list in UAE
Broadly, VAT exemptions in UAE are given for certain financial services, residential building, and supply of bare land, local passenger and so on. However, to consider a supply as exempted from the VAT, the specific conditions mentioned in the UAE VAT Act and Executive Regulations need to be fulfilled.
The following is the list of exempted goods and services:
- 1. Financial Services
- a. Financial services which are not conducted in return for an explicit fee, discount, commission, and rebate or any similar return are exempted.
- b. The issue, allotment, or transfer of ownership of an equity security or a debt security are exempted from VAT Rate.
- c. The provision or transfer of ownership of a life insurance contract or the provision of re-insurance in respect of any such contract is under VAT exempted list.
- 2. Residential Buildings
- a.The lease is more than 6 months or
- b. The tenant of the property is a holder of an ID card issued by the Emirates Identity Authority
- Any place that is not a building fixed to the ground and can be moved without being damaged
- Any building that is used as a hotel, motel, bed and breakfast establishment, or hospital or the like
- A serviced apartment in which services in addition to the supply of accommodation are provided
- Any building constructed or converted without lawful authority In all the above cases, VAT @ 5% will be applicable.
- 3.Bare Land
- 4. Local Passenger Transport Services
The following financial services are under VAT exemption supplies:
This sounds good! But how do I know whether an activity or service which I am providing is a financial service? Is there any definition of financial services?
Yes, the UAE VAT Executive Regulation has not defined what is financial service is, but it has listed down the instances which amount to financial services.
Financial services are those services which are connected to dealing in money or its equivalent and the provision of credit. Exchange of currency issue, provision of any loan, advance or credit, the operation of any current, deposit or savings account etc. are few instance of financial services.
Kindly note, not all of the financial services discussed above are exempted from VAT. If any of these services are conducted in return for an explicit fee, commission, discount, and rebate or similar return as consideration in respect of the supply of services, it would amount to a taxable supply.
The supply of residential buildings are under VAT exemption subject to the following condition:
The period of tenancy referred above will be identified with reference to the contractual period of tenancy and it will include any period arising from a right or option to extend the period of tenancy or renew the tenancy.
Here, residential buildings refer to buildings intended and designed for the human occupation which includes principal place of residence, residential accommodation for students or school pupils, armed forces and police, orphanages, nursing homes, and rest homes.
Broadly, all residential accommodations which are within the definition of residential building and satisfying the above conditions are exempted from VAT.
Are there any buildings which are not consider as a residential building?
Yes, all the non-residential accommodations are not considered as residential buildings. The following are the instances of buildings which are not considered as residential buildings:
In all the above cases, VAT @ 5% will be applicable.
Here, 'bare land' means a land that is not covered by complete buildings or partially completed buildings or civil engineering works.
The supply of local passenger transport services by way of transport by land, water or air from a place in the State to another place in the State will be exempted. The means of transport such as motor vehicle including taxi, bus, railway train, tram, monorail, ferry boat, abra or other similar vessel or similar means of transport, designed or adapted for transport of passengers are exempted from VAT.
Even helicopter or aeroplane designed or adapted for transport of passengers and approved for transport of passengers in accordance to the Civil Aviation Act is exempted.
However, local passenger transport services in the context of pleasure trip and local passenger transport service by aircraft which constitutes "international carriage' as mentioned in UAE executive regulation will not be exempted and VAT @ 5% will be levied.