Are charities exempt from VAT?
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No, charities still pay VAT on their purchases, but a charity listed in the Cabinet Decision can claim back the VAT it pays on costs used for its approved charitable activities.
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The detail
Charities are not VAT-exempt entities as such. Under Article 57 of the Federal Decree-Law, a Charity named in a Cabinet Decision may recover VAT it incurs for the purposes of its Relevant Charitable Activity, but this excludes VAT specifically blocked from recovery and VAT relating to goods/services used to make exempt supplies.1
What the law says
- Article 57(1)(b) allows Cabinet-Decision-listed Charities to recover input VAT paid for the purposes of their Relevant Charitable Activity.1
- Article 57(2) excludes from this recovery any VAT already blocked under the Executive Regulation and VAT on goods/services used to make exempt supplies.1
- A Relevant Charitable Activity means an activity carried out in furtherance of the charity's approved charitable purpose, not for the profit or benefit of any proprietor, member or shareholder (FTA guidance).2 Based on FTA guidance
What it depends on
- Only Charities specifically named in the relevant Cabinet Decision qualify for this recovery mechanism.1
- Recovery is limited to VAT incurred for the Relevant Charitable Activity, not general or non-charitable activities.12
- Recovery is only via a special refund claim process rather than a blanket exemption, so VAT is still charged at the point of supply (FTA guidance).3 Based on FTA guidance
Check before you rely on it
- Confirm the charity is listed in the applicable Cabinet Decision entitled to recover input tax
- Check whether the expense relates to a Relevant Charitable Activity as defined
- Check whether the supply purchased was used to make exempt supplies, which would block recovery
Sources (3) — read the official text
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Article 57 - Recovery of Tax by Government Entities and
Read the article
Article 57 - Recovery of Tax by Government Entities and Charities25 1. Without prejudice to the general provisions of Input Tax recovery, Government Entities and Charities entitled to recover the full amount of Input Tax shall be determined in a Cabinet Decision issued upon the recommendation of the Minister, according to the following: a. Input Tax paid by the Government Entity for the purposes of its sovereign activities. 25 Article amended as per Federal Decree-Law No. 18 of 2022. Federal Decree-Law No. 8 of 2017 and its amendments – As published by the Ministry of Finance 28 b. Input Tax paid by the Charity for the purposes of its Relevant Charitable Activity. 2. As an exception to the provisions of Clause 1 of this Article, the following shall be excluded from recovery: a. Tax excluded from recovery as specified in the Executive Regulation of this Decree-Law. b. Tax paid for Goods and Services used to perform Exempt Supplies. Chapter Two – Apportionment and Adjustment of Input Tax
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4.4. What is a relevant charitable activity? A “relevant charitable activity” is9: • • undertaken by the charity in the course or furtherance of its charitable purpose or objectives to carry out a charitable activity in the UAE, as approved by the Ministry of Community Development, or under the conditions of its establishment as a charity under Federal or Emirate Decree, or as otherwise licensed to operate as a charity by an agency of the Federal or Emirate Governments authorised to grant such licences; not for the purpose of profit or benefit to any proprietor, member, or shareholder of the charity. For further details please refer to other guidance as published by the Federal Tax Authority. 9 Article 38, VAT Executive Regulations. 12 VAT Guide | Real Estate | VATGRE1
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It is therefore possible that the first rent instalment for a building may be zero-rated while subsequent periods are exempt from VAT in the case of a residential building. 8 Since designated charities can recover VAT under the special refund rules, the relief acts largely as a cash-flow benefit in preventing a large amount of VAT being charged to the charity on the purchase of a building. Please refer to the Real Estate VAT Guide (VATGRE1) for more information in this regard. 8 9 Article 26 of the Executive Regulations, read with Article 38 of the Executive Regulations. VAT Guide | Charities | VATGCH1
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Written by AI from the FTA sources above and checked before display. Not tax advice or official FTA information - confirm with a tax adviser before you act. Full disclaimer
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