VAT Rates

The GCC framework has agreed on three VAT rates that may be levied by the member states with some degree of discretion. The first two are taxable supplies, while the third is a tax exempt supply.

  • Standard Rate
  • Zero Rate
  • Tax Exempt

Standard Rate

A standard rate is levied almost across all sectors and has been fixed at 5%.   All invoices will be required to show the tax value separately and the final bill value is the sum of the total plus the tax.

Businesses that quote a VAT inclusive price will be required to show the VAT charged separately in their invoices, rounded to the second decimal. All invoices must also show the VAT registration number to enable the buyer to claim VAT credit.

Zero Rate

A zero rate means that the tax is computed at a zero rate. The invoice will be required to show the tax column, but with a zero rate and zero value.  It is important to show the zero value as subsequent transactions will not be allowed to off-set the tax charged for items in this category.

However any purchase made where a tax has been paid and subsequently the item is sold, then the tax credit of purchases is available to claim.

For example, if raw material for producing bread was purchased paying a tax, and no tax was charged while selling bread, then the business can claim back the VAT paid.

The government has now provided clarifications of the goods to which the Zero rate is applicable. Zero-rating of value added tax applies when goods and services are being exported to outside a VAT-implementing GCC state, as well as to international transportation of passengers or goods including a transfer starting or ending in the UAE or passing through its territory.

Zero rating also applies to the supply of air, sea and land means of transport used to transport passengers and goods, as well as the supply of goods and services related to the supply of the means of transport, which are for operating, repairing, maintaining or converting them.

Zero rating also applies to the supply of aircrafts or vessels designated for use in the assistance or rescue by air or sea; the supply of goods and services related to the transfer of goods or passengers aboard land, air or sea means of transport, designated for consumption on board; or anything consumed by means of transportation, any installations or addition thereto or any other uses during transportation.

The supply or import of investment-precious metals, as well as the first supply of residential buildings within (3) years of its completion, either through sale or lease in whole or in part, is equally subject to a zero-rate.

GCC List of Zero Rated Goods

  • Exports outside GCC
  • Food items as per GCC list
  • Medicine and Medical Equipment as per GCC list
  • Supply of sea, land and air means of transportation
  • International and Intra GCC transport and services
  • Charity organisations
  • Gold, silver and platinum – 99% and more purity
  • First supply after extraction of gold, silver and platinum

Also subject to the zero rate is the supply of educational services and related goods and services for nurseries, preschool, elementary education, as well as higher educational institutions owned or funded by the Federal or local government, as specified in the Executive Regulation; and, finally, the supply of preventive and basic healthcare services and related goods and services, as specified in the Executive Regulation.

UAE:  Additionally:

  • Health and Education
  • Residential real estate – first supply

A comprehensive list is awaited and will be updated here, so please return back later.

Tax Exempt

The Tax Exempt supplies are not charged any VAT, however any tax paid earlier on purchases of the item is not available for credit.

As an example consider a taxi service (local passenger transport) that is tax exempt and will not collect any VAT from passengers. Though it will not collect any tax it will not be able to get credit for the tax they have paid for purchase of motor vehicles.

GCC : Tax Exempt List

  • Imports of goods which are custom exempt
  • Local passenger transport
  • Bare Land

UAE: Additionally exempt

  • Residential buildings other than zero rated
  • Some specific financial services – margin based

A comprehensive list is awaited and will be updated here, so please return back later.

Comparing Different Tax Rates

To understand the concept of different rates let’s consider three companies. Entity A is an importer for computers, Entity B is a computer retailer, Entity C is a Hospital, and Entity D is a Taxi Company. The tax rate will vary according to the nature of the company and the goods and services.

Tax PaidService/ProductTax ChargedTax to ClaimTax to Pay
Computer ImporterImporter to RetailStandardComputers100100
Computer ShopRetail to CustomerStandardComputer12020
Tax PaidService/ProductTax ChargedTax to ClaimTax to Pay
Computer ImporterImporter to HospitalStandardComputers100100
HospitalHospital to PatientZeroMinor Surgery0100
Tax PaidService/ProductTax ChargedTax to ClaimTax to Pay
Computer ImporterImporter to Taxi CompanyStandardComputers100100
Taxi CompanyTaxi Service to PassengerExemptTaxi Ride00

 

The below table outlines all supplies that will be subject to the 5% Value Added Tax, as well as zero-rated supplies and exempt supplies:

VAT Treatment on Selected Industries

Education VAT rateVAT rate
Private and public school education (excluding higher education) and related goods and services provided by education institution0%
Higher education provided by institution owned by government or 50% funded by government, and related goods and services0%
Education provided by private higher educational institutions, and related goods and services5%
Nursery education and pre-school education0%
School uniforms5%
Stationery5%
Electronic equipment (tablets, laptops, etc.)5%
Renting of school grounds for events5%
After school activities for extra fee5%
After school activities supplied by teachers and not for extra charge0%
School trips where purpose is educational and within curriculum0%
School trips for recreation or not within curriculum5%
HealthcareVAT rate
Preventive healthcare services including vaccinations0%
Healthcare services aimed at treatment of humans including medical services and dental services0%
Other healthcare services that are not for treatment and are not preventive (e.g. elective, cosmetic, etc)5%
Medicines and medical equipment as listed in Cabinet Decision0%
Medicines and medical equipment not listed in Cabinet Decision5%
Other medical supplies5%
Oil and GasVAT rate
Crude oil and natural gas0%
Other oil and gas products including petrol at the pump5%
TransportationVAT rate
Domestic passenger transportation (including flights within UAE)Exempt
International transportation of passengers and goods (including intra-GCC)0%
Supply of a means of transport (air, sea and land) for the commercial transportation of goods and passengers (over 10 people)0%
Supply of goods and services relating to these means of transport and to the transportation of goods and passengers0%
Real estateVAT rate
Sale and rent of commercial buildings (not residential buildings)5%
First sale/rent of residential building after completion of construction or conversion0%
First sale of charitable building0%
Sale/rent of residential buildings subsequent to first supplyExempt
Hotels, motels and serviced accommodation5%
Bare landExempt
Land (not bare land)5%
UAE citizen building own home5% (recoverable)
Financial servicesVAT rate
Margin based products (products not having an explicit fee, commission, rebate, discount or similar)Exempt
Products with an explicit fee, commission, rebate, discount or similar5%
Interest on forms of lending (including loans, credit cards, finance leasing)Exempt
Issue, allotment or transfer of an equity or debt securityExempt
Investment gold, silver and platinum, jewelleryVAT rate
≥99% pure and tradable in global markets0%
<99% pure5%
Jewellery5%
Insurance and ReinsuranceVAT rate
Insurance and reinsurance (including health, motor, property, etc)5%
Life insurance and life reinsuranceExempt
Food & BeveragesVAT rate
Food and beverages5%
Telecommunications and electronic servicesVAT rate
Wired and wireless telecommunications and electronic services5%
Government activitiesVAT rate
Sovereign activities which are not in competition with the private sector undertaken by designated government bodiesConsidered outside VAT system
Activities that are not sovereign or are in competition with the private sectorVAT rate dependent on good/service ignoring provider
Not for Profit OrganizationsVAT rate
Activities of foreign governments, international organisations, diplomatic bodies and missions acting as such (if not in business in the UAE)Considered outside VAT system
Charitable activities undertaken by societies and associations of public welfare which are listed by Cabinet DecisionConsidered outside VAT system
Activities of other not for profit organizations (not listed in Cabinet Decision) which are not business activitiesConsidered outside VAT system
Business activities undertaken by the above organizationsVAT rate dependent on good/service ignoring provider
Free zonesVAT rate
Supplies of goods between businesses in designated zonesConsidered outside VAT system
Supplies of services between businesses in designated zonesVAT rate dependent on service ignoring location
Supplies of goods and services in non-designated zonesVAT rate dependent on good/service ignoring location
Supplies of goods and services from mainland to designated zones or designated zones to mainlandVAT rate dependent on good/service ignoring location
OtherVAT rate
Export of goods and services to outside the GCC implementing states0%
Activities undertaken by employees in the course of their employment, including salariesConsidered outside VAT system
Supplies between members of a single tax groupConsidered outside VAT system
Any supplies of services or goods not mentioned above (includes any items sold in the UAE or service provided)5%
Second hand goods (e.g. used cars sold by retailers), antiques and collectors’ items5% of the profit margin