All You Need to Know About UAE VAT Exempted and Zero-Rate Products

To begin with, it needs to be mentioned that in the upcoming VAT implementation in UAE, there will be two types of supplies – Taxable and Exempted.

In case of Taxable Supplies, the following list of goods and services shall be taken into account –

• Retail purchase
• Hotels and restaurants
• Repair and Maintenance Service
• Commercial property (Lease and Sale)

The Taxable Supplies category will be further divided into two sub-divisions, namely Full Rate/Standard and Zero Rate.

On the other hand, services and goods that come under Exempted Supplies will consist of –

• Bare Land
• Local transportation such as taxi, bus, metro and others
• Residential Properties (2^nd sale onwards)
• Residential property lease.

The main difference between Zero-rating and Exempted supplies is that the suppliers of Zero-rated goods and services can reclaim their input VAT unlike the exempt goods and services’ suppliers.

Zero-rating VAT

Zero Rating VAT will be applicable to services and goods which are being exported to places outside the VAT-implemented GCC state. There will be a tax column in the invoice which will display a zero value and a zero rate.

It will also be applicable to the following goods and services:

1. International transportation of potential passengers or goods which have their transfer starting or ending in UAE or even in the case of the materials passing through the region
2. Zero-rate VAT will be incurred on air passengers in UAE if it comes under the International Carriage section, according to the Article (1) of Warsaw International Convention for the Unification of Certain Rules Relating to International Carriage by Air, 1929
3. Zero-rating will also be applicable to the means of land, sea and air transport that are used in order to transport goods and passengers
4. The VAT Rate will also be applicable in case of Intra GCC and International transport and related services
5. The supply of vessels and aircrafts which are meant to be used by sea or air in case of rescues and aids
6. Further items that are subjected to a zero-rate VAT include investment-precious metals such as platinum, silver and gold
7. The first supply of platinum, silver and gold post-production
8. Food items that come under the GCC list
9. The first supply of real estate (residential)
10. The supply of natural gas and crude oil.

Apart from these, goods and services related to educational sector are also subjected to the zero-rate tax. These include services for elementary, pre-school and nurseries. It is also to be mentioned that higher education bodies that are funded or owned by the local or federal government will also be subjected to this zero-rate VAT category.

According to the Executive Regulation, supply of goods and services that are related to preventive and basic healthcare services will also be counted as items that fall under the category of zero-rate items.

Tax Exempt Supplies

According to the law, there are certain supplies that are subjected to exempt tax. No VAT Rate will be charged on these supplies. However, any tax which has been paid in the past on the purchase of these goods listed under tax exempt won’t be available for credit. For instance, a local bus service, which is a mode of passenger transportation falling under the tax exempt category, will not collect any value added tax from the passengers. Although the service will not collect any tax, it won’t be getting any credit for the tax paid during the purchase of the vehicles.

The broader list of items that comes under the Tax Exempt category of GCC includes:

1. Financial services and supply of residential properties either by lease or sale, as specified in the Executive Regulation
2. According to the Article (1) 27, products and services that are likely to be exempt may include life insurance and military as well. However, the non-life insurance items will be coming under the VAT Law of UAE
3. Residential buildings apart from the zero-rated ones
4. Margin-based financial services.

Apart from these, we have already mentioned earlier, there are other supplies too that are exempted from tax such as local transport and bare land.

According to the Law, Payable tax for any tax-session is going to be calculated as Total Output tax (this is precisely the tax that the taxable person will be charging on his supply) during the specified period less the Gross Input Tax, which is recoverable by the taxable person over the same tax-session.

It is to be mentioned that in case a taxable person is acquiring or importing Capital Asset, then he/she will be required to analyze the period of use of that particular asset, and shall also make the required adjustments to the Input Tax that has been paid.

Record of Financial Transactions; What you Need to Know About It

One must take note of the fact that each and every business house in UAE will be required to keep a record of their financial transactions and are also required to ensure the fact that their financial records are kept updated with absolute accuracy.

Here are the essentials you need to take note of.

1. Businesses meeting the minimum yearly turnover requirement will be required to get themselves registered under VAT
2. The firms that don’t think they should come under VAT will be needed to maintain records of finance in case in any occasion they are needed to come up with an explanation or an establishment of fact whether the business should be registered under VAT
3. It is always recommended that the eligible firms which are still not registered under VAT must get themselves registered at the earliest, in order to avoid hassles in the near future
4. The other companies must make sure that they have an up-to-date and technically accurate record of transaction, which can be presented and brought forth, as and when required
5. An original tax invoice is required to be issued by the registrant who’s making a deemed or taxable supply and delivered to the recipients of the services or the goods. In case of a zero-recipient, the registrant should maintain it in his own records.

As per the Law, the Executive Regulation must contain the information which is to be added in the tax invoice, procedures and every other condition that are needed to issue electronic tax invoice, occasions where the registrant is not needed to issue tax invoice the recipient of services and goods, occurrences where other documents may be required to be issued in place of tax invoice, along with their specifications and every other necessary information that are needed to be added there. The Executive Regulation must also include where another person on behalf of the registrant supplier may issue a tax invoice.

However, it is also to be noted that one should not make the blunder of presuming that if there’s no applicable tax, then it’s an exempted one. There are three categories of Zero-rate tax too.

• Zero-Rated
• Exempt
• Out of Scope

So, one must get his/her facts clarified and the business model verified beforehand, so that the person could remain updated and notified with the requirements, and shall also be able to get a verified insight on the categories of zero-tax which in the long run will help him/her to carry on with the business alertly with regards to tax exemptions.

It is better to hire a professional consultant to categorize your services under zero-rate or exempt; otherwise you may land in tax evasion

It is high time for you business to get registered under the law. It is always advisable to act responsibly when there’s time left. We at Uaevatexpert.ae have some of the most eminent industry stalwarts associated for expert consultation and assistance services, as and when required.

We have every required technicality and features that can help you calculate VAT, check for readiness to deduce the fact whether your business comes under VAT. In case you are required to register your business house according to the VAT Law, then ask us to do the needful at the earliest. We are here to help you with the initial procedure and make your firm VAT-ready before 1^st January, 2018. Apart from VAT registration service, our consultancy excels in the following fields as well.

• Tax
• Accounting
• Audit
• Company Incorporation

So, get in touch with us today, and secure your business house with the best of advisory services in the entire UAE.