Things to know about VAT exempt supplies in UAE

Exempt supplies are defined as the supply of goods and services where there are no UAE Value-added Tax (VAT) is charged and no claim on the related Input tax is allowed, except as stated by the Decree-law of UAE. According to UAE’s executive regulations, there are certain goods and services which are free from the VAT charge meaning such goods or services are not subject to VAT, exempt from Charge of VAT.

For businesses dealing with the supply of such exempted goods and services, they cannot claim Input tax related to exempt supply. Any VAT on expenses related to exempt supply becomes part of the cost to the supplier.

e.g.  A Company paid 4% of the VAT on the purchase of the raw material. Let’s assume the final goods created from that raw material is an exempt good. Since it is an exempt supply Company cannot claim the 4% input tax that the Company paid at the time of purchases of raw material.  Hence, it will become part of the cost of the product.

List of exempted goods and services in the UAE

For goods and services to be an exempt supply, they should be as specified by the UAE’s VAT Law and Executive Regulations. Here is a list of certain VAT exempted goods and services in UAE which every person dealing in business should know: –

Financial services

Financial services are money centered services, Credit services, loans, insurance, deposits, investments, etc. are all finance-related services. It is important to know that not all financial services are VAT exempt supply and there are only certain financial services that come under this category. 

Following are the financial services which are VAT free:

A) Financial Services that are not conducted in return for discounts, commission, explicit fee and rebate or similar benefits, will have no VAT charge.

B) Issuing, allocating or transferring the ownership share in any corporation or entity is VAT exempt

C) Transferring the ownership of a life insurance contract or provision of reinsurance due to such contract are VAT exempt 

Residential Buildings

Supply of residential building is VAT exempt under the following conditions: –

A) Supply of residential building which is not zero-rated supply

B) If the duration of the lease period as per contract is more than 6 months; or a tenant holds a legal ID proof card issued by the Federal Authority for Identity and Citizenships.

The first supply of residential buildings within three years of completion or first supply of buildings converted from non-residential to residential as mentioned in the executive regulation on VAT Decree-Law, is zero-rated. 

The residential buildings are constructed solely for human inhabitation like an apartment, staying accommodation for students, police or armed forces, nursing homes, orphanages, etc. Any building not constructed to accommodate people say hospitals, hotels, or a serviced apartment will not be treated as a residential building. The VAT will apply to the supply of non-residential buildings. 

Bare Land

It is an empty land with no constructed buildings, or any other thing built or designed. These are VAT exempt supplies. 

Transport services for local passenger

The transport services available for the local passenger by way of air, land, water or air in qualifying means is VAT exempted. For instance, land or water vehicles like motor vehicles, taxis, bus, trains, tram, monorail, ferry boats etc. is VAT exempt. Air transport like a helicopter or airplane dedicated and approved for passenger transport is VAT exempt supply too along with various other means of transport used for carrying passengers locally from one destination to the other. This does not include transport services used for a pleasure trip sight-seeing or other form of entertainment or any plane which carries “international carriage”. 

Shuraa Tax and Accounting Services LLC is the best-known brand in terms of providing essentially effective VAT services in Dubai. We are the best VAT consultants in Dubai and if you wish to gain a more detailed knowledge about the VAT exempt supplies in UAE, contact our team of qualified accountants and consultants.