Which supplies are exempt from VAT in the UAE?

Article 46 - Supply Exempt from Tax19 The following shall be exempt from Tax: 1. Supply of financial Services that are specified in the Executive Regulation of this Decree-Law. 2. Supply of residential buildings through sale or lease, other than that which is zerorated according to Clauses 9 and 11 of Article 45 of this Decree-Law. 3. Supply of bare land. 4. Supply of local passenger transport. The Executive Regulation of this Decree-Law shall specify the conditions and controls for exempting the supplies mentioned in the preceding Clauses of this Article. Chapter Three – Single and Mixed Supplies

3. VAT 3.1 What is a taxable supply? Most business transactions involve supplies of good or services. A taxable supply is one where there is:     a supply of goods or services; for consideration; supplied in the course of conducting business in the UAE; by a VAT registered business (or a business that is obliged to be VAT registered). Taxable supplies may either be subject to the standard rate or zero rate of VAT. The term ‘taxable supply’ excludes exempt supplies and any supplies that are outside the scope of UAE VAT. 3.1.1 Standard rate In general terms, where VAT is charged at the standard rate, businesses that are registered for VAT are able to recover the VAT they are charged by their suppliers on goods and services, subject to certain conditions. VAT which is incurred on purchases is known as ‘input tax’. 3.1.2 Zero rate VAT is charged but at 0% on zero-rated supplies. Zero-rated supplies are treated as taxable supplies in all respects, including the right of the person making the supply to recover the VAT on their own business expenditure. 3.2 What is an exempt supply? No VAT is charged on exempt supplies. As these supplies are not ‘taxable supplies’, the supplier cannot recover any of the VAT on expenses (input tax) directly incurred in making exempt supplies. In addition, businesses which make supplies with a mixture of differing VAT liabilities will need to use a method of apportionment in respect of VAT incurred on general costs (i.e. input tax which is non-attributable to either taxable or exempt supplies). 7 VAT Guide | Financial Services | VATGFS1

3.4. UAE VAT rates There will be two VAT rates applicable within the UAE:   the standard rate of VAT – 5%; and the zero rate of VAT – 0%. In addition, a certain category of supplies will be “exempt” from VAT. Although VAT is not accounted for in respect of both zero-rated and exempt supplies, there is an important distinction between the two. 3.4.1. Zero-rated supplies VAT is not accounted for on zero-rated supplies (since the applicable rate is 0%), but such supplies are still treated as “taxable supplies” in all other respects. As a result, the person making the supply has the right to recover the VAT incurred on their own business expenditure in the same way as they would if they made standard-rated supplies. A full list of zero-rated supplies is included in Chapter 6. 3.4.2. Exempt supplies Similar to zero-rated supplies, no VAT is collected in respect of exempt supplies. However, since those supplies are not “taxable supplies”, the supplier cannot normally recover any of the VAT on expenses incurred in making exempt supplies. Incurred VAT therefore will represent a cost to businesses involved in making supplies which are wholly or partly exempt from VAT. A full list of exempt supplies is included in Chapter 6. 3.5. Adding VAT to goods and services VAT is charged on the value of goods and services. When adding VAT to the price of goods or services, the business should multiply the amount by the applicable VAT rate (e.g. 5%). If the price already includes VAT, divide the price by 21 (for the 5% VAT rate) to find out the VAT amount. Subtracting this amount from the VAT-inclusive price, will give the VAT-exclusive value of the supply. 10 VAT Guide | Taxable Person | VATG001