Zero-rated supplies within the UAE VAT system pertain to taxable transactions subject to a 0% VAT rate. These transactions are either categorized as such based on the nature of the supply, irrespective of the specific goods or services involved, or they involve specified goods or services listed on the zero-rated inventory.
Typically, all exports of goods and services from the UAE fall under the zero-rated supply category. However, to qualify for this zero-rated status, businesses must adhere to certain conditions outlined in the UAE executive regulations.
Zero-Rated VAT Items and Services in the UAE
The following goods and services fall under the zero-rated VAT category in the UAE. As previously mentioned, compliance with the conditions set out in UAE executive regulations is essential to classify these transactions as zero-rated supplies.
1. All direct and indirect exports of goods and services to destinations beyond the implementing States.
2. Exported Telecommunications Services.
3. International transportation services for both passengers and goods, including other transportation-related services.
4. The supply or import of investment-grade precious metals like gold, silver, and platinum, provided their metal purity is 99% or higher and they are in a form tradable in global bullion markets.
5. Residential buildings designed for human habitation, including residential accommodation for students or school pupils, armed forces and police, orphanages, nursing homes, and rest homes.
6. Buildings specifically designed for use by charitable organizations.
7. Education services.
8. Healthcare services.
Is There a Distinction Between Zero-Rate Supplies and Exempt Supplies in UAE VAT?
This question arises because the end result of zero-rated supplies and exempt supplies is the same: no VAT is levied on the transaction. However, there is a difference in how they are treated regarding the ability to claim input tax credit (ITC).
For purchases of goods or services classified as zero-rated supplies, businesses are entitled to claim the VAT paid as ITC and offset it against their output tax liabilities. In the case of exempt supplies, businesses cannot claim ITC on the VAT amount paid for their purchases.
Furthermore, zero-rated and exempt supplies may be reported separately in the VAT Return, although the exact format of the VAT Return is yet to be disclosed.
Hence, it is crucial for businesses to comprehend zero-rated supplies and distinguish between zero-rated and exempt supplies because the rationale for the absence of VAT in each case differs. This understanding is instrumental in making accurate ITC claims and filing VAT returns.
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