VAT Exempt Supplies in UAE

Understanding Value Added Tax (VAT) in the United Arab Emirates (UAE) is crucial for businesses operating within the country. While the standard VAT rate is 5%, certain categories of goods and services are exempt from VAT altogether. The UAE offers a VAT exemption on financial services, supplies of residential properties, transactions on bare land, and local passenger transport. This article provides a comprehensive guide to VAT exempt supplies in the UAE.

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What is VAT Exemption Supplies in UAE?

VAT exempt supplies refer to the provision of goods or services for a fee within the UAE, where no VAT is levied. This means businesses supplying these goods or services do not charge VAT to their customers. However, they can also not claim input tax, which is the VAT paid on their purchases related to the exempt supply. For example, if you paid 5% input VAT for raw materials you bought, but if the finished product comes under the exempted supply, you will not get 5% input VAT back. 

VAT Exempt Goods and Services List in UAE

Generally, the exempted supplies in the UAE VAT system are financial services, residential property, bare land, and local passenger transport. However, other specific conditions outlined in the Executive Regulation of Federal Decree-Law No. 8 of 2017 must also be fulfilled. 

Financial Services

Financial services are generally exempt, but only when provided without an explicit fee, discount, commission, rebate, or similar compensation.  Here are some exempt activities:

• Currency exchange
• Cheque and letter of credit transactions
• Issuing, transferring, etc. of debt and equity securities
• Loans, advances, and credit provision
• Guarantees, indemnities, and bonds related to financial activities
• Operating current, deposit, and savings accounts
• Transfer of ownership of financial instruments (derivatives, options, etc.)
• Payment and collection related to financial instruments and life insurance

Residential Buildings

The supply of residential buildings, including sale and rent, is generally exempt. However, there are two exceptions where the supply becomes zero-rated (VAT charged at 0% with input tax recovery):

• Lease exceeding 6 months: The supply is zero-rated if the lease agreement is for more than 6 months.
• Tenant with FAIC ID: If the tenant holds an ID card issued by the Federal Authority for Identity and Citizenship (FAIC), the supply is zero-rated regardless of the lease duration.

Bare Land

The sale and lease of bare or vacant land, excluding structures, are exempt from VAT.

Local Passenger Transport Services

Public transportation services for passengers within the UAE, by land (buses, taxis), water (ferries, abras), and air (domestic flights), are exempt from VAT. This applies only to transportation within the UAE borders. International passenger transport might be subject to different VAT treatment.

Learn more: Types of VAT Supplies in UAE

Conclusion

In conclusion, understanding VAT exemptions in the UAE is crucial for businesses. While the standard rate is 5%, specific categories like financial services (without fees), residential properties, bare land transactions, and local passenger transport within UAE borders are exempt from VAT. However, businesses supplying these goods or services cannot claim input tax. This guide provides a starting point, but it always refers to official UAE VAT regulations.

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