According to UAE VAT, it is easy to confuse zero tax rate, tax exemption and out-of-range supply. Although the end result of all these supplies is the same, that is, no value-added tax is charged on these supplies, it is important to understand the actual differences between these supplies. From a reporting point of view, this is also important, because in the VAT return, a clear fork of the value of each item must be provided.
Let us understand the difference between these consumables from the following table:
Zero interest rate consumables exempt consumables beyond the scope of consumables
Meaning Zero-rated supply is taxable supply, on which 0% value-added tax should be charged. Duty-free supplies are specific supplies that have been declared duty-free. On these consumables, no value-added tax should be charged. Out-of-scope consumables are consumables that exceed the value-added tax scope
Input tax reclaims these as taxable supplies. Therefore, input tax can be levied on the input tax used to make zero-rated supplies. The input tax used to manufacture duty-free supplies cannot be recovered. Supplies
Example 1. Export of goods to non-GCC VAT-implementing countries
2. Export of services outside the territory of the Gulf Cooperation Council
3. Precious metal supply 1. Specific financial service supply
2. Raw space supply
3. Local passenger transport supply
4. Residential buildings provided through sale or lease, with the exception of zero tax rate; 1. Buildings provided by persons without VAT registration
2. Special supplies provided by the government
So, as you can see, although any of these supplies do not charge VAT, the main difference between these supplies is that zero-rated supplies allow input tax recovery, while tax-exempt supplies do not allow input tax recovery. For out-of-scope supplies, there is no concept of input tax recovery because they are not within the scope of VAT. Similarly, the reasons for not levying VAT on these supplies are also different. It is important to know the difference between these supplies so that the VAT return can be accurately declared, and input tax can only be charged on eligible supplies.