There is often confusion between zero-rated, exempt, and out-of-scope supplies under UAE VAT.

Although VAT is not charged on any of these supplies, there are key differences between them that are important to understand, especially for reporting purposes.

Zero-rated supplies are considered taxable supplies, but VAT Registration is charged at 0%. Examples include exports and precious metals. Because they are taxable, input tax invoice recovery is allowed on expenses related to making zero-rated supplies.

Exempt supplies are specifically declared as exempt from VAT, so no VAT Registration UAE is charged on them. Examples include certain financial services, bare land, and residential buildings. Input tax recovery is not allowed on expenses related to making exempt supplies.

Out-of-scope supplies fall outside the scope of VAT Return UAE altogether. They are made by unregistered persons or involve certain government activities. There is no concept of input tax recovery for out-of-scope supplies since they are outside the VAT system.

So in summary, even though VAT Dubai is not charged on zero-rated, exempt or out-of-scope supplies, the key difference lies in whether input tax recovery is allowed or not, which depends on whether the supply is considered taxable or not. It’s crucial to understand these distinctions for accurately filing VAT return uae and claiming input tax invoice format deductions.

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