VAT implementation is into effect from January 1, 2018. UAE VAT is a charge borne by the final customer. The general rule of VAT law is that the supplier has to account for VAT. The closing price of the transaction is inclusive of VAT. 

There are two major terminology in VAT (Value Added Tax) “Zero-Rated VAT” and “Exempted VAT”.

What is Zero-Rated VAT?

Any goods and services that are exported to a gulf cooperation (GCC) country that doesn`t implemented VAT just yet. This includes international transportation of passengers and goods, transfer that starts in UAE or ends in UAE or cross any region of UAE.

Simply, Zero Rated VAT means that supply of goods and services that are taxable but 0% VAT is imposed.

VAT registered business that makes Zero-Rated supplies or services have the right to claim their input tax deduction that they have obtained for producing taxable supplies.

The price of goods are reduced when Zero-Rated VAT is imposed.

What is Exempted VAT?

Goods on which tax is not imposed by the government and suppliers cannot claim or recover credits for any VAT expenses incurred in making of these goods.

VAT exemptions sometimes can be the cause of rise in prices. Due to this government uses exempted VAT for the goods or services where it is difficult to define, such as financial services.

Difference between Zero-Rated VAT and exempted VAT

Zero-Rated VAT means 0% VAT is applied to goods or services and allows the businessmen or supplier to claim the VAT expenses incurred in making of these goods. On the other hand exempted VAT means that no VAT is applied on the goods and services.

14 Zero-Rated VAT Goods and Services listed in Article 45 of federal decree law of 2017 are as follows:

(a) Direct or Indirect Exports

(b) International Transport (international airfares)

(c) Air Passenger Transport

(d) Supply of transport for passengers and goods using air, sea, and land

(e) Goods and services supply for the purpose of the operation, repair, maintenance, or conversion of those means of transport

(f) Aircraft and Vessels for Rescues

(g) Supply of Goods and Services Related to the Transfer of Passengers or Goods

(h) Investment in Precious Metal

(i) Sale of the Residential Building

(j) Charitable Building Supplies

(k) First Supply for Residential Building

(l) Oil and Gas, which is crude oil and natural gas

(m) Educational Services

(n) Healthcare Services

Exempted VAT Goods and Services listed in Article 46 of federal decree law of 2017 are as follows:

(a) Financial services

(b) Supply of residential buildings through lease or sale

(c) Supply of bare land

(d) Supply of local passenger transport