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 Paid
Service/Product
Tax Charged
Tax to Claim
Tax to Pay
Computer Importer
Importer to Retail
Standard
Computers
100
100
Computer Shop
Retail to Customer
Standard
Computer
120
20
Tax Paid
Service/Product
Tax Charged
Tax to Claim
Tax to Pay
Computer Importer
Importer to Hospital
Standard
Computers
100
100
Hospital
Hospital to Patient
Zero
Minor Surgery
0
100
Tax Paid
Service/Product
Tax Charged
Tax to Claim
Tax to Pay
Computer Importer
Importer to Taxi Company
Standard
Computers
100
100
Taxi Company
Taxi Service to Passenger
Exempt
Taxi Ride
0
0
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 rate
VAT rate
Private and public school education (excluding higher education) and related goods and services provided by education institution
0%
Higher education provided by institution owned by government or 50% funded by government, and related goods and services
0%
Education provided by private higher educational institutions, and related goods and services
5%
Nursery education and pre-school education
0%
School uniforms
5%
Stationery
5%
Electronic equipment (tablets, laptops, etc.)
5%
Renting of school grounds for events
5%
After school activities for extra fee
5%
After school activities supplied by teachers and not for extra charge
0%
School trips where purpose is educational and within curriculum
0%
School trips for recreation or not within curriculum
5%
Healthcare
VAT rate
Preventive healthcare services including vaccinations
0%
Healthcare services aimed at treatment of humans including medical services and dental services
0%
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 Decision
0%
Medicines and medical equipment not listed in Cabinet Decision
5%
Other medical supplies
5%
Oil and Gas
VAT rate
Crude oil and natural gas
0%
Other oil and gas products including petrol at the pump
5%
Transportation
VAT 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 passengers
0%
Real estate
VAT rate
Sale and rent of commercial buildings (not residential buildings)
5%
First sale/rent of residential building after completion of construction or conversion
0%
First sale of charitable building
0%
Sale/rent of residential buildings subsequent to first supply
Exempt
Hotels, motels and serviced accommodation
5%
Bare land
Exempt
Land (not bare land)
5%
UAE citizen building own home
5% (recoverable)
Financial services
VAT 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 similar
5%
Interest on forms of lending (including loans, credit cards, finance leasing)
Exempt
Issue, allotment or transfer of an equity or debt security
Exempt
Investment gold, silver and platinum, jewellery
VAT rate
≥99% pure and tradable in global markets
0%
<99% pure
5%
Jewellery
5%
Insurance and Reinsurance
VAT rate
Insurance and reinsurance (including health, motor, property, etc)
5%
Life insurance and life reinsurance
Exempt
Food & Beverages
VAT rate
Food and beverages
5%
Telecommunications and electronic services
VAT rate
Wired and wireless telecommunications and electronic services
5%
Government activities
VAT rate
Sovereign activities which are not in competition with the private sector undertaken by designated government bodies
Considered outside VAT system
Activities that are not sovereign or are in competition with the private sector
VAT rate dependent on good/service ignoring provider
Not for Profit Organizations
VAT 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 Decision
Considered outside VAT system
Activities of other not for profit organizations (not listed in Cabinet Decision) which are not business activities
Considered outside VAT system
Business activities undertaken by the above organizations
VAT rate dependent on good/service ignoring provider
Free zones
VAT rate
Supplies of goods between businesses in designated zones
Considered outside VAT system
Supplies of services between businesses in designated zones
VAT rate dependent on service ignoring location
Supplies of goods and services in non-designated zones
VAT rate dependent on good/service ignoring location
Supplies of goods and services from mainland to designated zones or designated zones to mainland
VAT rate dependent on good/service ignoring location
Other
VAT rate
Export of goods and services to outside the GCC implementing states
0%
Activities undertaken by employees in the course of their employment, including salaries
Considered outside VAT system
Supplies between members of a single tax group
Considered 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’ items
