Zero-Rated Tax

What is Zero-Rated VAT?

Zero-Rated in VAT refers to the 0% VAT tax on certain product categories. All the countries using the value-added tax declare certain products as zero-rated.

We have shared here a brief overview of the zero-rated goods and services in the UAE.

Why Zero-Rating is Important?

The zero-rating is generally declared for the goods which are contributing to the economic growth of the nation or are very crucial and essential for the citizens.

All the taxpayers who are engaged in the sale of such goods and services may have incurred the input taxes. The taxpayers also have the option to reclaim the input taxes on zero-rated goods as a VAT tax refund.

In order to claim a refund of input VAT of the zero-rated products, the invoices should be mentioning the VAT as 0% or zero-rated. After verifying the sale invoices and other official documents, the tax authorities refund the VAT paid on the inputs.

What are the Zero-Rated Goods/Services?

Although VAT will be applied on the majority of the goods and services in Dubai from 2018, there will be specific products and services that will be charged zero per cent VAT tax whereas certain products are also entirely exempted as mentioned below.

At present, the Federal Tax Authority has declared the following goods and services as zero-rated goods.

  • Basic healthcare services
  • Basic education services
  • Goods and service outside GCC.
  • Gold, silver and platinum for investment purposes.
  • International transport of passengers outside U.A.E. (eg. Air travel).
  • Subsequent supplies of residential property (sales and leases) will be exempt from VAT. However, the first sale of new residential property within a time period of 3 years from construction will be subject to the zero-rated of VAT.

What are Exempted goods?

At present, the Federal tax authority has declared the below goods and services as exempted goods, which would be out of VAT scope.

  • Local passenger transport
  • Supply of residential property except for the first sale which is zero-rated.
  • Bare land.
  • Life Insurance, except non-life insurance.
  • Financial services except for fee-based services.

Read on further to know what are the key differences between zero-rated and exempted products

Zero-rated and Exempted Supplies :

  • Zero-rated supplies: Supplies on which tax is charged at Zero-rated are called zero-rated supplies. Zero-rated supplies form part of the taxable turnover.
  • Exempted supplies: Supplies on which no tax is payable.
  • Zero-rated supplies v/s Exempted Supplies

The key difference between Zero-rated supplies and exempt supplies is that the suppliers of zero-rated goods and/or services can still reclaim/refund all their input VAT. But the suppliers of exempt goods are either not registered for VAT or if they are, they cannot reclaim their input VAT.

If the product is zero-rated, you will need VAT registration and can file a return.
If a business in Dubai is making taxable supplies at 0% or 5%, you will get to recover all the VAT charges paid for the inputs of the business.

Find JCA UAE Audit, Leading Accounting Firms for VAT in Dubai, for more information, Inquire us today.