How the VAT is Applicable On Educational Services in the UAE
The treatment of VAT on educational services in the UAE is likely to appear complex for the entrepreneurs as specific rates apply for the different supplies of goods and services. The Federal Tax Authority (FTA) mandates that the main educational services and the goods and services associated with it will be zero-rated if it is supplied by the ‘qualifying educational institutions.’ The following institutes come under the qualifying educational institute category as per the FTA,
- Nurseries, preschools, and schools
- Higher educational institutions owned or funded by Federal or local Government
To be recognized as a qualifying educational institute for the VAT purpose, the funding for the higher education centre should account for 50% of the annual funds. Further, the curriculum of the school should be the ‘Recognized Curriculum’ approved by the local or Federal Government.
As per the FTA guidance on VAT, a qualifying educational institution is not allowed to charge VAT on the zero-rated educational services they provide. The institutions, therefore, are able to recover the VAT they pay on related costs when they file their tax returns. However, all the other entities that do not come under the definition of a qualifying educational institution will be subject to the standard VAT rate of 5%. The VAT treatment of the educational services is a complex affair and the expert assistance of prominent VAT consultancy services in Dubai is highly recommended.
Does a ‘Qualifying Educational Institution’ Need to Register for VAT in the UAE?
The educational services provided by the ‘qualifying educational institutions’ are considered as a zero-rated taxable supply. Therefore, an educational institution has to register for VAT if its supplies exceed the Mandatory Registration Threshold of AED375,000. If the school doesn’t provide any services or goods taxed at the standard rate of 5%, then it can apply for an exception from registration. This means the schools are relieved from regular returns but it cannot also recover the input tax incurred on its expenses. Reputed VAT consultants in Dubai, UAE could help the educational institutions to ensure VAT compliance.
Supplies Related to Education that are Standard Rated
The VAT on the following supply of goods and services provided at the qualifying educational institutions are considered as standard-rated:
- Goods and services provided by a qualifying institution to people not enrolled in it
- Any Goods, except the educational materials, that are consumed by the students in the qualifying institutions
- Uniforms or other clothes to be mandatorily worn by students even if it is not supplied by the qualifying schools
- Electronic devices used for educational purposes in the schools
- Food and beverages supplied at the qualifying institution, including the beverages from vending machines
- Field trips that are not related to the curriculum
- Extracurricular activities conducted by or at the institution for a fee
- Membership in a student organization
VAT on Student Accommodation
The FTA considers the student accommodation within the definition of residential accommodation and therefore it is exempt from VAT. The schools that supply accommodation to students will not be able to recover VAT incurred on costs related to accommodation.
VAT on Grant Income or Sponsorship Received
The VAT treatment on the grant income or sponsorship received by the schools from Government or third parties is dependent upon certain specific conditions. If the grant is received without offering any benefit in return, then the fund received will be considered outside the scope of VAT. On the contrary, the schools have to account for VAT on the funding received if the donor is getting any benefit out of it. The benefits may include
- Naming an event after the sponsor
- Reduced price tickets for the sponsorship
- Displaying the sponsor’s logo in prominent places
Grant-Funded Research Subject to VAT
Higher education institutions often receive funding for researches and the VAT treatment on such grants is also dependent upon the benefits received by the people who fund the research. Standard VAT rating will apply to the grant income if the educational institute provides any deliverables, intellectual property, or any other products of the research to the funder. However, if the funder is receiving research-related information such as progress updates, records of expenses, etc. then it won’t be considered as supply of services and the grant income will be considered outside the scope of VAT.
VAT Treatment on School Transportation
The school transportation has been included under the definition of domestic transportation. Therefore the FTA considers the school transportation as exempt from the VAT.
Why Choose Jitendra Chartered Accountants as Tax Agents in the UAE?
The implication of VAT on educational services in the UAE is a complex procedure and needs expert assistance of qualified Tax agents in the UAE to ensure compliance. The FTA has issued specific regulations regarding the goods and services related to the education services that are zero-rated or standard rated. Apart from the supply of main educational services, the educational centres need to have in-depth knowledge about the VAT ratings on scholarships, sponsorship and the food and beverages supplied at the schools. This makes the process of VAT compliance a tough task for such institutions and that is why a reputed TAX consultancy firm like Jitendra Chartered Accountants (JCA) becomes indispensable for the business owners. JCA’s highly qualified Tax agent is well versed in all the regulations related to tax in the UAE and has helped thousands of clients in ensuring VAT compliance. JCA’s tax agents are the best in Dubai, UAE and the clients could avail services like VAT registration, VAT returns filing, And VAT deregistration. JCA’s efficient tax agent will guide the educational businesses in Dubai, UAE to be VAT compliant and avoid hefty penalties for non-compliance.