In the UAE VAT, supplies are roughly divided into taxable supplies, including zero-rate supplies and tax-free supplies. Taxable supplies are products levied at the standard value-added tax rate of 5%, while zero-rated and duty-free supplies are not taxed. However, the zero-tax rate and the VAT treatment of duty-free items are different. To learn more, please read Zero-Rate Supplies in UAE Value Added Tax.
The applicability and treatment of VAT on supplies are different. Several factors, such as the location of the supply, the location of the supplier, and the location of the recipient, are critical to determining the applicability of VAT. On this basis, we divided the consumables into different categories and detailed the applicability of VAT in the following table:
The type of supply in the VAT illustrates the taxable example
VAT registered suppliers of domestic taxable supplies must charge VAT on all local supplies of goods and services within the UAE. The VAT collected from customers is called output tax and must be reported in the VAT return. The standard value-added tax rate is 5%, and A-One Spare Ltd in the UAE provides parts to customers in the UAE. Here, the supply of spare parts is subject to a 5% value-added tax.
Reverse charging products Companies registered in the UAE must pay VAT for certain notified goods, such as goods and services imported from overseas/other VAT countries/regions that have implemented GCC, based on reverse charging. They are allowed to refund VAT as input tax during the same tax period, so that there is no need to pay/refund additional taxes for the transaction. The standard rate of value-added tax is 5%. A-One Spare Ltd is a registered distributor of spare parts and accessories in Dubai, and imported spare parts worth AED 5500 from Speed Motors Ltd in India. Here, as a registered importer, A-One Spare Ltd must pay a 5% value-added tax to the government, that is, AED 5,500, or AED 275, and claim an input tax of AED 275 in the month. Therefore, the transaction does not need to pay any additional taxes.
Suppliers registered for zero-rate supply VAT can levy value-added tax at zero-rate (that is, 0% VAT) on the supply of certain notified goods and services (such as exports of goods and services, international transportation services, etc.). 0% VAT A-One Spare Ltd is a registered distributor of spare parts and accessories in Dubai and exported spare parts to a customer in India. Here, the export of spare parts will be levied 0% value-added tax.
Tax-free supply of certain notified goods and services, such as financial services, residential buildings, bare land, local passenger transport, etc., are exempt from value-added tax. Nil A-One Spare Ltd has received a local passenger service that is exempt from VAT.
GCC internal supply-B2B suppliers registered in the UAE do not need to charge value-added tax for providing goods and services to recipients registered in other GCC states. In the above circumstances, the reason for using it as a supply location is deemed to be in another GCC implementation state. Nil A-One Spare Ltd, a registered distributor of spare parts and accessories in Dubai, provided spare parts to customers registered in Saudi Arabia. Here, A-One Spare Ltd does not need to supply spare parts to Saudi Arabia and charge VAT customers.
GCC internal supply-B2C For suppliers registered in the UAE, providing goods or services to recipients who are not registered in another implementing country, 5% VAT will be applied. This rule only applies when the value of all exports from the UAE to the implementing country by the supplier does not exceed the mandatory registration threshold of the implementing country. The standard value-added tax rate is 5%. A-One Spare Ltd is a distributor of spare parts and accessories registered in Dubai. It provides spare parts to unregistered customers in Saudi Arabia. Here, the supply of spare parts will attract 5% UAE VAT.
For suppliers registered in the UAE, providing goods or services to recipients who are not registered in another implementing country, and the value of all exports of the supplier from the UAE to the implementing country exceeds the mandatory registration threshold of the implementing country. VAT will not apply. The reason is that the supply location is considered to be outside the UAE. In this case, the supplier (from the UAE) must register in KSA and collect VAT in accordance with the KSA VAT Law. Nil A-One Spare Ltd, a registered distributor of Dubai spare parts, provided spare parts to unregistered customers in Saudi Arabia. In addition, the total supply from A-One Spare Ltd to KSA exceeded 375,000 Saudi Arabian riyals (exceeding the mandatory registration threshold limit). Here, the supply of spare parts will be regarded as not belonging to UAE VAT and will not attract UAE VAT% at 5 points. However, A-One Spare Ltd shall be registered under KSA VAT and Levy VAT in accordance with the KSA VAT Law.