Zero Rated Supplies in UAE to Maximize Your Profits

Zero rated supplies in UAE are a unique category within the tax code that involves goods and services taxed at zero percent. This blog comprehensively explains what zero-rated supplies entail in the UAE. 

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What does zero rated supplies in UAE mean?

A zero rated tax system refers to the application of a 0% tax rate on supplies. 

In the context of Value Added Tax (VAT), these supplies need to be declared in the VAT returns filed for each tax period. 

Zero-rated VAT, unlike goods and services, still falls undersupplied but with a tax rate of zero percent.

One important example where zero-rated VAT is applicable is when dealing with goods and services meant for export outside the United Arab Emirates (UAE). 

In some cases, exporters are allowed to charge 0% VAT on these transactions, provided they can provide documents proving the export. 

These official documents play a role in confirming eligibility for the zero-rated tax treatment.

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The aim of zero rated supplies in UAE

The purpose behind implementing zero rated VAT for exports is to promote trade and increase competitiveness of UAEs goods and services in the market. 

By not burdening exported items with VAT rates, the government aims to facilitate growth, encourage cross-border commerce, and enhance UAE business’s competitiveness at an international level.

Exporters need to make sure that their paperwork is precise, thorough, and aligned with the specified regulations to take advantage of the tax exemption. 

This usually entails offering proof, like shipping records, customs declarations, and other applicable documents that validate the export of goods or services.

List of zero rated supplies in UAE

Zero rated supplies in UAE include:

1- International transport

International airfares are under the zero rated supplies in UAE as it is stated that services and goods transported globally starting or ending in UAE or crossing any party of UAE’s region, that involves services related to such transport, will have zero rates applied to them.

2- Air passenger transport

The transport of air passengers in the country is also under the zero rated supplies in UAE “if it is considered an ‘international carriage’ according to Article (1) of the Warsaw Convention for the Unification of Certain Rules Relating to International Carriage by Air 1929.”

3- Supply of sea, air, and land means of transport

Following the Executive Regulations of this Decree-Law, sea, air, and land means of transport for transporting passengers and goods are also under the zero rated supplies in UAE.

4- Services and goods related to means of transport supply 

The supply of services and goods for the repair, operation, maintenance, or conversation of the means above of transport is considered zero rated supplies in UAE.

5- Aircraft and Vessels for Rescue

Aircraft and vessels intended for rescue and sea or air assistance will be considered zero rated supplies in UAE.

6- Products and services related to transporting goods or passengers

This includes anything intended to be consumed during transportation, such as goods and services on board or other items or additions for use while traveling.

7- Sale of the Residential Building

Following the controls in the Executive Regulations of Decree-Law, residential buildings in their first 3 years of completion, whether for sale or lease in whole or in part, will be considered zero rated supplies in UAE.

8- Charitable building supplies

If the buildings are to be used by charities, first supplies shall have zero rate applied to them (lease or sale).

9- Oil and Gas

Natural gas and crude oil are under zero rated VAT UAE.

10- Educational services

According to the Decree Law, educational services and associated goods and services for nurseries, preschools, primary schools, and higher education institutions that receive funding from the local government will be exempt from any taxes.

12- Healthcare services

The supply of preventive and basic healthcare services and related goods and services will also be exempt from taxes.

13- Direct or Indirect Exports

It involves exporting goods directly or indirectly from the UAE to GCC countries without VAT implementation.

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Other types of VAT ratings for supplies in UAE

1- Standard-rated supplies of VAT

According to VAT regulations, in the UAE, standard-rated supplies are subject to a 5% tax at the time of the transaction. 

Standard rating applies to all supplies traded within the UAE mainland when the supplier and recipient are located there, except for specified zero-rated or exempted supplies. 

The term “mainland” refers to any location in the UAE that’s not a Designated Zone. 

To help you understand standard-rated VAT supplies in the UAE better, consider these scenarios:

• A sale between a supplier and recipient located within the UAE mainland involving goods or services also incurred within the UAE mainland.
• The transfer of goods from the mainland to a designated zone within the UAE.
• The provision of services takes place throughout the UAE, including service transfers, within a designated zone.

2- Out-of-Scope Supplies of VAT

It refers to the supplies not covered by VAT regulations in the UAE. Unlike standard-rated, exempt supplies, and zero rated supplies in UAE, there is no requirement to report out-of-scope supplies in the VAT returns submitted during each tax period. 

Additionally, companies that solely engage in out-of-scope supplies are not obligated to register for UAE VAT. 

However, they have the option to voluntarily register for VAT in UAE if their taxable supplies exceed the registration threshold of AED 187,500. 

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3- Exempt Supplies of VAT

According to Federal Decree Law No. (8) of 2017, Value Added Tax exempt supplies refer to supplies that are not subject to tax and do not allow input tax recovery unless specified otherwise in the law. 

This means exempt supplies are those traded within the UAE without VAT, whether at 0% or 5%. 

Exempt supplies vat UAE include:

• Financial services.
• Sale or lease of buildings (excluding those for zero-rating).
• Bare land.
• Local passenger transport.

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Difference between zero rated and exempt vat in uae

A zero-rated VAT refers to goods and services that are considered taxable but have a VAT rate of 0%. 

Businesses registered for VAT can claim deductions on the taxes they paid while producing these supplies. 

On the hand, an exempt VAT pertains to goods or services that are not subject to any VAT rate.

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UAE VAT exempt and zero rated items

1- Examples of Zero-rated items:

As we mentioned, zero rated supplies in UAE include many items, such as:

• Export of goods and services.
• Certain international transportation services.
• The supply of certain medications.

2- Examples of Exempt items:

• Residential properties.
• Certain financial services.
• Local passenger transportation.

Impact on businesses

Businesses dealing with zero-rated supplies have a more favorable position as they can recover input tax credits, which helps to reduce costs.

On the other hand, businesses dealing with exempt supplies may face higher costs as they cannot reclaim the VAT paid on their inputs.

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