UAE VAT Rate Structure

The UAE implemented Value Added Tax (VAT) in 2018. It's a consumption tax levied on most goods and services. The UAE VAT rate is a percentage of the price added by the seller and collected from the customer. The standard Value added tax (VAT) rate in the UAE is 5%, with some exceptions for zero-rated and exempt goods and services. It is necessary to do VAT registration UAE and collect VAT from the customers at 5% rate to comply with UAE VAT regulations. This article explores the UAE VAT rates and explains the terms involved to understand the UAE VAT system better.

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VAT Rates in UAE

The table below shows the "UAE VAT Rate" classification, with its equivalent input tax recovery and examples.

Let's understand each term in the following sections.

Standard VAT rate

The standard UAE VAT rate is 5%. This applies to most goods and services you encounter daily, such as electronics, clothing, restaurant meals, salon services, and utility bills. Apart from Zero-rated supplies, VAT is levied on all taxable supplies.

Zero-rated Supplies

Zero-rated supplies are essentially taxable, but the VAT rate is 0%. This means no VAT is added to the price. However, businesses making zero-rated supplies can still claim input tax credits, benefitting cash flow management. The following categories come under VAT zero-rated supplies in the UAE. Each category should meet the specific rate to get a zero-rated applicability for the supplies.

• Exports of goods
• International transportation services
• Specific investment-grade precious metals (e.g., gold, silver)
• Public transportation for passengers within UAE (excluding business class)
• Newly constructed residential properties (first supply within 3 years of completion)
• Certain educational services and related goods/services
• Certain preventive and basic healthcare services and related goods/services

VAT Exempted Supplies

VAT-exempt supplies are not considered taxable and are entirely outside the scope of VAT. This means no VAT is charged on these supplies, and businesses making exempt supplies cannot claim input tax credits for VAT paid on related expenses.

• Financial services (banking, insurance, etc.)
• Local public transport 
• Bare land sales
• Residential property rentals (unless zero-rated)

What is the difference between Zero-rate supplies and Exempt Supplies?

The key difference between zero-rated and exempt supplies is whether the supply is considered taxable or not.  Zero-rated supplies are technically taxable with a 0% VAT rate, while exempt supplies are not taxable.

How to Calculate VAT in UAE?

Follow these simple step-by-step processes to calculate VAT in the UAE,

1. Identify the taxable base: The price of the good or service before VAT is added.
2. Check the VAT rate: Most goods and services fall under the standard rate of 5%.
3. Multiply the taxable base by the VAT rate: If the taxable base is AED 100 and the rate is 5%, multiply 100 x 5%.
4. The result is the VAT amount: In this example, the VAT amount would be AED 5.
5. Add the VAT amount to the taxable base: To find your final price, add 5 (VAT) to 100 (taxable base) for AED 105.

To learn the detailed procedure: VAT calculation in UAE 

Conclusion

This article explained the different VAT rates (standard, zero-rated, exempt) in the UAE. Understanding these rates helps determine the VAT you pay on goods and services, along with VAT registration UAE, which ensures you comply with regulations. Remember, Filings.ae can assist with VAT calculations and filing!

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