VAT in GCC
GCC VAT Overview
UAE is a signatory to the GCC VAT Framework and has been proactive in this regards. It announced the implementation of VAT from January 1, 2018.
Schedule of Implementation
|Third Quarter 2017||Release of Law|
|Fourth Quarter 2017||Registration of Businesses, It could even start in the third quarter 2017|
|January 1, 2017||Implementation|
|April 1, 2018||Filing of First Return, It could be earlier for large businesses.|
The Federal Tax Authority (FTA) will keep business informed about VAT implementation in UAE through its website tax.gov.ae
FTA would UAE businesses to implement VAT through a series of orientation and training seminars. Many business and professional associations have organized awareness seminar in a bid to prepare for the VAT regime in UAE.
See our Event Calendar for upcoming events.
- UAE will have 3 rates for VAT
- Standard Rate: 5%
- Zero Rate: 0%
- Exempt : 0%
UAE will follow the GCC VAT Framework for applying the rates to different sectors but may have discretion to declare changes for Zero and Exempt categories.
UAE List – Zero Rated
- Direct or indirect exports outside Implementing States*
- Intl transport of passenger and goods incl services related to such transport
- Air passenger transport considered as Intl transport
- Supply of sea, land and air means of transportation meant for transportation of passengers and goods*
- Supply of Goods and Services related to the supply of the means of transport, designed for the operation, repair, maintenance or conversion of these means of transport.
- Supply of aircrafts or vessels designated for rescue and assistance by air or sea.
- Supply of Goods and Services, designated for consumption on board; or anything consumed by any means of transport, any installations or addition thereto related to Intl transport
- The supply or Import of investment precious metals for investment purposes*
- The first supply of residential buildings within (3) years of its completion, either through sale or lease in whole or in part*.
- The first supply of buildings converted from non-residential to residential through sale or lease*
- The supply of crude oil and natural gas.
- The supply of educational services and related Goods and Services for nurseries, preschool, elementary education, and higher educational institutions owned or funded by Federal or local Government*
- The supply of preventive and basic healthcare Services and related Goods and Services*
*The details will be specified in the Executive Regulations of the Decree Law.
The government has provided a few 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 air crafts 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.
Tax Exempt – UAE list
- Financial services that are specified in the Executive Regulation of this Decree-Law.
- Supply of residential buildings through sale or lease, other than that which is zero-rated
- Supply of bare land
- Local passenger transport
Reverse charge mechanism under UAE VAT
In the UAE VAT, the Reverse Charge Mechanism is applicable while importing goods or services from Implementing States and outside the GCC countries. Under this, the businesses may not have to physically pay VAT at the point of import provided they have obtained permission from the tax authorities.
The responsibility for reporting of a VAT transaction is shifted from the seller to the buyer under Reverse Charge Mechanism. Here the buyer reports the Input VAT (VAT on purchases) as well as the output VAT (VAT on sales) in their VAT return for the same quarter.
The reverse charge is the amount of VAT one would have paid on that goods or services if one had bought it in the UAE. The importer has to disclose the amount of VAT under both Input VAT as well as Output VAT categories of the VAT return of that quarter.
Reverse Charge Mechanism eliminates the obligation for the overseas seller to register for VAT in the UAE.