Goods and Services Subject to Zero VAT Rate

VAT was implemented in UAE in 2017 and VAT is Supervised by Federal tax Authority of UAE.VAT at zero rate shall apply to the following Goods and Services:

A direct or indirect Export of Goods and Services to outside the Implementing States as specified in the Executive Regulation of this Decree-Law.

2. International transport of passengers and Goods

International transport of passengers and Goods which starts or ends in the State or passes through its territory, including Transport-related Services.

3. Air passenger transport in the State

Air passenger transport in the State if it is considered an “international carriage” pursuant to Article 1 of the Warsaw Convention for the Unification of Certain Rules Relating to International Carriage by Air 1929.

4. Supply or Import of air, sea and land means of transport

Supply or Import of air, sea and land means of transport for the transportation of passengers and Goods as per the criteria and conditions specified in the Executive Regulation of this Decree-Law.

5. Supply of Goods or Services, or Import of Concerned Goods

Supply of Goods or Services, or Import of Concerned Goods, related to the supply of the means of transport mentioned in Clause 4 of this Article and which are designated for the operation, repair, maintenance or conversion of these means of transport.

6. Supply or Import of air or sea rescue

Supply or Import of air or sea rescue and assistance aircrafts or vessels.

7. Transport of Goods or passengers aboard air, sea and land

Supply of Goods and Services related to the transport of Goods or passengers aboard air, sea and land means of transport pursuant to the provisions of Clauses 2 and 3 of this Article, designated for consumption on board; or anything consumed by any means of transport, any installations or addition thereto or any other use during transportation.

8. Precious metals

The supply or import of investment precious metals. The Executive Regulation of this Decree-Law shall specify the precious metals and the standards based on which they are classified as being for investment purposes.

9.Residential Buildings

The first supply of residential buildings within 3 years of its completion, either through sale or lease in whole or in part, according to the controls specified in the Executive Regulation of this Decree-Law.

10. Building Used by Charities

The first supply of buildings specifically designed to be used by Charities through sale or lease according to the controls specified in the Executive Regulation of this Decree-Law.

11.Buildings Converted to Residential Building

The first supply of buildings converted from non-residential to residential through sale or lease according to the conditions specified in the Executive Regulation of this Decree-Law.

12.Crude oil & Natural Gas

The supply or import of crude oil and natural gas.

13. Educational Services

The supply of educational services and related Goods and Services for nurseries, preschool, school education, and higher educational institutions owned or funded by Federal or local Government, as specified in the Executive Regulation of this Decree-Law.

14. Healthcare Services

The supply of preventive and basic healthcare Services and related Goods and Services, and import of concerned related Goods according to what is specified in the Executive Regulation of this Decree-Law.

Image Credit goes to Tax Authority

Explanation of Zero Rated Export of Goods

Direct Export

The Direct Export shall be subject to the zero rate if the following conditions are met:

• The Goods are physically exported to a place outside the Implementing States or are put into a customs suspension regime in accordance with GCC Common Customs Law within 90 days of the date of the supply.
• Official (means Export documents issued by the local Emirate Customs Department in respect of Goods leaving the State) and commercial evidence (Airway bill,Bill of lading, Consignment notes, Certificate of shipment) of Export or customs suspension is retained by the exporter.

Indirect Export

An Indirect Export shall be subject to the zero rate if the following conditions are met:

• The Goods are physically exported to a place outside the Implementing States or are put into a customs suspension regime in accordance with GCC Common Customs Law, within 90 days of the date of the supply under an arrangement agreed by the supplier and the Overseas Customer at or before the date of supply.
• The Overseas Customer obtains official and commercial evidence (Airway bill, Bill of lading, Consignment notes, Certificate of shipment) of Export or customs suspension in accordance with GCC Common Customs Law, and provides the supplier with a copy of this.
• The Goods are not used or altered in the time between supply and Export or customs suspension, except to the extent necessary to prepare the Goods for Export or customs suspension.
• The Goods do not leave the State in the possession of a passenger or crew member of an aircraft or ship.

The evidence obtained as proof of Export, whether official or commercial, must identify the following:

• The supplier
• The consignor
• The Goods
• The value
• The Export destination
• The mode of transport and route of the export movement

Zero-Rating the Export of Services

The export of services can be zero-rated in certain situations. Let’s explore these cases and understand the conditions that need to be met.

Conditions for Zero-Rating Export of Services

• Services Supplied to Non-Residents: If the following conditions are met:

• The services are supplied to a recipient of services who does not have a place of residence in an implementing state and is outside the state at the time of service performance.
• The services are not directly connected to real estate or movable personal assets within the state at the time of service performance.

• Services Performed Outside Implementing States: Services performed outside the implementing states or services arranged that are also performed outside the implementing states can be zero-rated.
• Facilitation of Outbound Tour Packages: The supply of services related to the facilitation of outbound tour packages can be zero-rated for that specific part of the service.

Determining “Outside the State”

To consider a person as “outside the state,” the person must have a short-term presence in the state of less than a month, and this presence should not be effectively connected with the supply.

Exception to Zero-Rating

In some cases, a supply of services may not be zero-rated if it is made under an agreement with a non-resident recipient of services and the following conditions are met:

• The performance of the services is received in the state by another person, including employees or directors of the non-resident recipient of services.
• It is reasonably foreseeable at the time of the agreement that the person receiving the services in the state will make supplies for which input tax is not fully recoverable under Article 54 of the VAT Law.

Definition of “Facilitation of Outbound Tour Packages”

Services that fall under the “facilitation of outbound tour packages” refer to the services provided by a taxable person in packaging tourism products, including accommodation, meals, transport, and other activities, outside the implementing states.

Zero-Rating Exported Telecommunications Services

Zero-rating also applies to the export of telecommunications services. Let’s explore the situations in which telecommunications services can be zero-rated.

Situations for Zero-Rating Telecommunications Services

• Telecommunications Supplier to Non-Resident Telecommunications Supplier: A supply of telecommunications services by a telecommunications supplier with a place of residence in the state to a telecommunications supplier with a place of residence outside the implementing states can be zero-rated.
• Telecommunications Supplier to Non-Telecommunications Supplier: A supply of telecommunications services by a telecommunications supplier with a place of residence in the state to a person who is not a telecommunications supplier and has a place of residence outside the state can be zero-rated. The place where the supply is initiated is determined as follows:

• The place of the person who commences the supply.
• If the above doesn’t apply, the person who pays for the services.
• If neither of the above applies, the person who contracts for the supply.

Definition of “Telecommunications Supplier”

A “telecommunications supplier” refers to a person whose primary activity is the supply of telecommunications services.

Zero-Rating International Transportation Services for Passengers and Goods

International transportation services for passengers and goods, along with transport-related services, can be zero-rated in specific cases. Let’s explore these cases in detail.

Cases for Zero-Rating International Transportation Services

1. Transport from the State to Outside the State: Transporting passengers or goods from a place in the state to a place outside the state can be subject to the zero rate.
2. Transport from Outside the State to the State: Transporting passengers or goods from a place outside the state to a place in the state can also be subject to the zero rate.
3. Domestic Transport as Part of International Transport: Transporting passengers from one place in the state to another place in the state, by sea, air, or land, as part of an international transport of those passengers can be zero-rated if the first place of departure or the final place of destination is outside the state.
4. Goods Transported Within or Between States: Transporting goods from one place in the state to another place in the state can be subject to the zero rate if the services are supplied as part of the transport of goods from the state to outside the state or from outside the state to the state.

Goods and Services Zero-Rated in Connection with Transportation

The following goods and services can be zero-rated if they are supplied in connection with the transportation services mentioned above or are treated as taking place outside the state:

• Goods supplied for use, consumption, or sale on aircraft or ships.
• Services provided during the transportation services.
• Services related to insuring or arranging the insurance or transport of passengers or goods.

Zero-Rating Postage Stamps for Goods Transportation

A supply of postage stamps issued by Emirates Post Group can be zero-rated when the stamps are redeemable for the transportation of goods to a place outside the state.

Zero-Rating Certain Means of Transport

Zero-rating also applies to the supply of certain means of transport. Let’s explore the cases in which these supplies can be zero-rated.

Cases for Zero-Rating Means of Transport

1. Aircraft for Commercial Transportation: The supply of an aircraft designed or adapted for commercial transportation of passengers or goods, excluding recreation, pleasure, or sports, can be subject to the zero rate.
2. Ships, Boats, and Floating Structures: The supply of a ship, boat, or floating structure designed or adapted for commercial purposes, excluding recreation, pleasure, or sports, can also be subject to the zero rate.
3. Buses and Trains for Public Transportation: The supply of a bus or train designed or adapted for public transportation of 10 or more passengers can be subject to the zero rate.

Zero-Rating Goods and Services Supplied in Connection with Means of Transport

Goods and services related to the supply of means of transport can be zero-rated in certain cases. Let’s explore these cases and understand which goods and services can be subject to the zero rate.

Goods and Services Subject to Zero Rating

• Goods Related to Operating, Repairing, Maintaining, or Converting Means of Transport: Goods, excluding fuel or other oil or gas products, supplied in the course of operating, repairing, maintaining, or converting means of transport can be zero-rated if any of the following conditions apply:

• The goods are incorporated into, affixed to, attached to, or form part of those means of transport.
• The goods are consumable goods that become unusable or worthless as a direct result of being used in the operation, repair, maintenance, or conversion process.

• Services Directly Related to Means of Transport: Services supplied directly in connection with means of transport for the purpose of operating, repairing, maintaining, or converting those means of transport can be zero-rated.
• Services Related to Parts and Equipment of Means of Transport: Services supplied directly in connection with parts and equipment of means of transport, as mentioned in Article 34 of this Decision, for the purpose of repairing and maintaining those parts and equipment can be zero-rated if any of the following applies:

• The services are carried out onboard the means of transport.
• The part or equipment is removed for repair or maintenance and subsequently replaced in the same means oftransport.
• The part or equipment is removed for repair or maintenance and subsequently held in stock for future use as spares in the same means of transport or another means of transport.
• The part or equipment cannot be repaired and is exchanged for an identical part or equipment.

Zero-Rating of Precious Metals

The supply or import of investment precious metals can be zero-rated. “Investment precious metals” refer to gold, silver, and platinum that meet the following criteria:

• The metal has a purity of 99 percent or more.
• The metal is in a form tradable in global bullion markets.

Residential Buildings

Residential buildings are subject to specific considerations for zero-rating purposes. Let’s explore the definition and exceptions related to residential buildings.

Definition of “Residential Building”

A “residential building” refers to a building designed and intended for human occupation. This includes the following:

• Any building or part of a building that a person occupies or is intended to occupy as their principal place of residence.
• Residential accommodations for students or school pupils.
• Residential accommodations for armed forces and police.
• Orphanages, nursing homes, and rest homes.

Exclusions from “Residential Building”

The following are not considered residential buildings for zero-rating purposes:

• Structures that are not fixed to the ground and can be moved without damage.
• Buildings used as hotels, motels, bed and breakfast establishments, hospitals, or similar establishments.
• Serviced apartments where additional services are provided along with accommodation.
• Buildings constructed or converted without lawful authority.

Features of Residential Buildings

A building can be considered a residential building even if it has a small proportion used as an office or workspace by occupants, includes garages and gardens used in conjunction with it, or includes other features that are part of the residential building.

Zero-Rating Converted Residential Building

The first supply of a building or any part of a building that is converted into a residential building can be zero-rated if the following conditions are met:

• The supply takes place within 3 years of completing the conversion.
• The original building or part of it was not used as a residential building and did not form part of a residential building within the 5 years preceding the commencement of the conversion work.

The presence of shared or common facilities, dividing walls, or similar features in a residential building should not affect its consideration as part of a pre-existing residential building.

Zero-Rating Education Services

Education services can be subject to zero rating under certain conditions. Let’s explore the criteria for zero-rating education services.

Conditions for Zero-Rating Education Services

1. Curriculum Recognition: The supply of educational services should be provided in accordance with the curriculum recognized by the federal or local competent government entity regulating the education sector where the course is delivered.
2. Recognized Educational Institution: The supplier of educational services should be an educational institution recognized by the federal or local competent government entity regulating the education sector where the course is delivered.
3. Higher Education Institution: If the supplier of educational services is a higher education institution, the institution should either be owned by the federal or local government or receive more than 50% of its annual funding directly from the federal or local government.

Supplies of goods or services made by educational institutions identified in Clause 1 of this Article can be zero-rated if directly related to the provision of zero-rated educational services. Additionally, printed and digital reading material provided by educational institutions related to the curriculum can also be zero-rated.

However, there are exceptions to zero-rating in certain cases, including goods and services supplied to non-enrolled persons, goods consumed or transformed by students for educational purposes, uniforms or clothing required by the educational institution, electronic devices, food and beverages, field trips primarily recreational, extracurricular activities for an additional fee, and membership in student organizations.

Zero-Rating Healthcare Services

Healthcare services can be subject to zero rating if they meet specific criteria. Let’s explore the conditions for zero-rating healthcare services.

Definition of “Healthcare Services”

“Healthcare services” refer to services generally accepted in the medical profession as necessary for the treatment of the recipient, including preventive treatment.

Conditions for Zero-Rating Healthcare Services

To be zero-rated, a supply of healthcare services should meet the following conditions:

1. Provided by Licensed Healthcare Professionals: The supply should be made by a healthcare body or institution, licensed doctors, nurses, technicians, dentists, or pharmacies authorized by the Ministry of Health or any other competent authority.
2. Relate to Human Wellbeing: The services should be directly related to the wellbeing of a human being.

However, certain services and supplies are not considered healthcare services for zero-rating purposes. These include services or parts of a supply related to holiday accommodations or entertainment, elective cosmetic treatments not prescribed by medical professionals, and any goods that are not pharmaceutical products or medical equipment identified in decisions issued by the Cabinet.

A supply of pharmaceutical products, medical equipment, and other goods necessary for the provision of zero-rated healthcare services can be subject to zero rating.