Types of VAT Supplies in UAE

Understanding Value Added Tax (VAT) applicability on various supplies in the United Arab Emirates (UAE) is crucial for businesses operating within the country. Introduced in 2018, VAT plays a significant role in government revenue generation and necessitates proper compliance by registered businesses. The types of supply under UAE VAT are broadly classified into four: Taxable supplies, Zero-rated supplies, Exempt supplies, and out-of-scope supplies. This article focuses on the VAT applicability of the different types of supplies in the UAE. 

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What is VAT in UAE?

VAT is an indirect tax levied on the consumption of most goods and services. In the UAE, the standard VAT rate is 5%. A registered business selling taxable goods or services within the UAE must charge VAT on the selling price. This collected VAT (output tax) must be reported and remitted to the Federal Tax Authority (FTA). Conversely, a registered business can claim input tax, the VAT paid on purchases of goods and services for making taxable supplies. This mechanism ensures businesses only bear the net VAT cost.

Categories of Supplies under UAE VAT

UAE VAT classifies supplies into four main categories:

• Taxable Supplies: These are goods and services subject to VAT at the standard rate of 5%. This category includes the sale and lease of most commercial property, restaurant services, repairs and maintenance services, electronics, clothing, and many more.
• Zero-Rated Supplies: These are goods and services with a VAT rate of 0%. However, unlike exempt supplies (explained below), VAT paid on purchases related to zero-rated supplies can be recovered through input tax claims. Examples of zero-rated supplies include exports outside the GCC (Gulf Cooperation Council) countries, international transportation services, supply of certain educational and healthcare services, and specific unprocessed precious metals.
• Exempt Supplies: These are goods and services not subject to VAT. Businesses supplying exempt goods or services do not charge VAT and cannot recover input tax paid on purchases related to these supplies. Exempt supplies include bare land sales, local passenger transport services, financial services such as loans and insurance, and the first supply of residential buildings.
• Out-of-Scope Supplies: These are supplies not considered under the UAE VAT system. They typically involve overseas suppliers or non-registered businesses providing goods or services to someone outside the UAE.

Here, the table captures the types of supplies under UAE VAT,

Learn more: Difference between Zero-rated and Exempt Supplies in UAE

Conclusion

Businesses operating in the UAE must be familiar with the four main VAT supply categories (taxable, zero-rated, exempt, and out-of-scope) and their corresponding VAT treatment (5%, 0%, or not applicable) to ensure proper VAT compliance and avoid potential penalties. This knowledge is critical for businesses to accurately charge VAT on taxable supplies, claim input tax on relevant purchases, and navigate VAT requirements for different types of transactions.

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