Value Added Tax (VAT) exemption in Dubai define as “delivery of products or services for consideration while conducting business in the State, where no tax owed and no Input Tax may be reclaimed except in accordance with the requirements of the Decree-Law.” Simply said, certain exempted goods or services are list in UAE executive regulations and not subject to VAT. This means that no VAT charge when certain products or services supplied.
VAT exemptions in the UAE give for some financial services, residential construction, and the supply of bare land, among other things. To be consider exempt from VAT, however, the particular conditions outlined in the UAE VAT Act and Executive Regulations must be met.
Businesses who provide these exempted items or services, on the other hand, will be unable to claim the input tax paid on your purchases. For example, suppose you paid 5% VAT on raw materials and presume that final goods made from raw materials are exempt from VAT. You will no longer be able to claim the 5% Input VAT paid on your purchases, and it should be considered a cost of the goods.
What Exactly is VAT?
The Value Added Tax (VAT) is an indirect tax levied by the government on most services and goods. It implemente on January 1, 2018 at a rate of 5% to assist the UAE government in reducing its reliance on oil and other hydrocarbons as an income source.
The Federal Tax Authority (FTA) classified VAT into three categories under Federal Decree-Law No. (8) of 2017: 5% standard rate, exempt, and zero-rated. In the UAE, the usual VAT rate of 5% applies to the following categories:
- Entertainment \sElectronics
- Hotel amenities
- Food and drinks
- Bills for utilities
- Private transportation
- Uniforms for school
- Commercial lease
- Cars
- Jewelry and other industries
List of exempted goods and services in the UAE
VAT exemptions in the UAE apply to supplies that deemed “exempt” from further taxation. Suppliers of goods and services who fit within the VAT exempt categories not require to register for VAT or file tax returns in the UAE. Rents for residential units, for example, include in VAT-free real estate transactions in Dubai.
The list of exempted products and services is as follows:
Financial Services
Financial services are those associated with the exchange of money or its equivalent and the provision of credit. services include the exchange of currency, the provision of any loan, advance, or credit, the operation of any current, deposit, or savings account, and so on.
The following financial services are exempt from VAT:
- Financial services that are not performed in exchange for an explicit fee, discount, commission, rebate, or other comparable return are excluded.
- The issue, allotment, or transfer of ownership of an equity or debt security is exempt from the VAT rate.
- The provision or transfer of ownership of a life insurance contract, as well as the provision of reinsurance in relation to any such contract, is exempt from VAT.
Residential Buildings
Residential buildings in this context refer to structures intended and planned for human occupation, such as primary residences, residential accommodation for students or school kids, armed forces and police, orphanages, nursing homes, and rest houses.
The supply of residential buildings is free from VAT under the following conditions:
- The lease is longer than 6 months.
- The property’s occupant has an ID card issued by the Emirates Identity Authority.
- The above-mentioned duration of tenancy shall be characterized by reference to the contractual length of tenancy, and it will include any period arising from a right or option to extend or renew the tenancy.
The lease is longer than 6 months. The property’s occupant has an ID card issued by the Emirates Identity Authority.
The above-mentioned duration of tenancy characterize by reference to the contractual length of tenancy, and it will include any period arising from a right or option to extend or renew the tenancy.
Local Passenger Transportation
The provision of local passenger transport services by land, water, or air from one location in the state to another exempted. Motor vehicles, including taxis, buses, railway trains, trams, monorails, ferry boats, abras, and other similar vessels or modes of transport constructed or adapted for passenger transport, are exempt from VAT.
Even a helicopter or airplane developed or converted for passenger transport and licensed for passenger transport in line with the Civil Aviation Act exclude.
Changes to the VAT Law
Furthermore, several changes made to the VAT Law.
- According to Article 15, any registered taxable person who is subject to full zero-rated supplies has the option of requesting registration exemption.
- The insertion of Subclause 21(2) empowers the FTA to issue a tax deregistration decision if it determines that the continuation of such tax registration may jeopardize the integrity of the tax system.
- Article 27(3)(a)(4) has also been included. This is in addition to Article 26’s clause 1 on continual supplies. It specifies that if the transfer is made in the state, the place of supply of products will be in the state.
- Article 30 is another addition (8). It specifies that the point of supply for transportation or transportation-related services will be the point at which the transportation begins.
- Article 45 amendments indicate that the following products will be considered zero-rated supply:
- Import of transportation vehicles
- Import of transportation-related products and services
- Importation of rescue planes or vessels
- Crude oil and natural gas imports
- Importation of basic healthcare items
- Precious metal imports (if imported for investment purposes)
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