In the realm of UAE Value Added Tax (VAT), zero-rated supplies pertain to taxable transactions where the VAT is assessed at a rate of zero percent. This zero-rate taxation applies to certain supplies based on the nature of the transaction, regardless of the specific goods or services involved, or to specified goods and services listed in the zero-rated category.
Primarily, all exports of goods and services from the UAE fall within the scope of zero-rated supplies. However, to qualify for zero-rated status, specific conditions outlined in the UAE executive regulations must be met.
Inventory of Goods and Services Eligible for Zero-Rated VAT in the UAE
Below is a compilation of goods and services that meet the criteria for zero-rated VAT in the UAE. As previously mentioned, strict adherence to the conditions specified in the UAE executive regulations is essential for categorizing these supplies as zero-rated.
1. All direct and indirect exports of goods and services to destinations outside the implementing states.
2. Telecommunications Services destined for export.
3. International transportation services for both passengers and goods, along with all related transportation services.
4. The supply or import of investment-grade precious metals, such as gold, silver, and platinum, with a minimum metal purity of 99 percent and in a form suitable for trading in global bullion markets.
5. Residential structures designed specifically for human habitation, encompassing residential accommodation for students or school pupils, armed forces and police, orphanages, nursing homes, and rest homes.
6. Buildings explicitly intended for use by charitable organizations.
7. Educational services.
8. Healthcare services.
Distinguishing Zero-Rated Supplies from Exempt Supplies in UAE VAT
The question often arises because the ultimate outcome of both zero-rated and exempt supplies is identical: VAT is not levied on the transaction.
However, there is a crucial disparity in the treatment of input tax credit (ITC). When businesses make purchases of goods or services categorized as zero-rated supplies, they have the privilege to claim the VAT paid as ITC and offset it against their output tax obligations. In contrast, for exempt supplies, businesses are not entitled to claim ITC for the VAT paid on their purchases.
Furthermore, it’s important to note that zero-rated supplies and exempt supplies are expected to be reported separately in the VAT Return, although the precise format for the VAT Return is yet to be released.
Hence, it is imperative for businesses to grasp the concept of zero-rated supplies and distinguish them from exempt supplies. This understanding is crucial for accurate ITC claims and the proper submission of VAT returns.
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