In the context of UAE VAT, it is imperative to distinguish between the supply of goods and services, as both are subject to the same 5% VAT rate. While the tax rate remains consistent, the UAE VAT Law and Executive Regulation treat the two categories separately due to their distinct characteristics.
Goods are defined as tangible, physical properties that can be supplied. This includes real estate, water, and various forms of energy, as specified in the UAE VAT Executive Regulation. In essence, anything that can be touched or felt falls under the category of goods. To clarify this distinction, the following forms of supply are considered as supply of goods in UAE VAT:
1. Transfer of ownership of goods or the right to use them from one party to another.
– For instance, when a furniture store sells furniture to a customer, ownership of the furniture is transferred, making it a supply of goods.
2. Transfer of ownership of items as per a contractual arrangement.
– If there’s an agreement between parties where ownership of goods will pass at a future date, or if the agreement mentions the intention to transfer possession of goods, it qualifies as a supply of goods.
3. Specific supplies, including water, real estate (sale and tenancy contracts), and all forms of energy (electricity, gas, etc.).
On the other hand, services encompass a broader range of offerings and are defined as anything that can be supplied other than goods. The UAE Executive Regulation provides further details on specific forms of supply that should be treated as services, such as:
1. Granting, assignment, cessation, or surrender of a right.
2. Making available a facility or advantage.
3. Agreement not to participate in any activity or not to allow its occurrence.
4. Transfer of an indivisible share in a good.
5. Transfer or licensing of intangible rights, including rights of authors, inventors, artists, and trademark rights, as recognized by the laws of the State.
It’s important for businesses to distinguish between the supply of goods and services to ensure proper VAT treatment. This differentiation is particularly crucial for service-based businesses, as services are defined more broadly in UAE VAT, encompassing non-physical property and any supply other than goods. This inclusive definition ensures that transactions falling outside the scope of goods are appropriately categorized as services.
You can also register for VAT Registration on our website: