VAT Amendments on Zero-Rated Supplies in the UAE
Implementing new VAT Executive Regulations under Cabinet Decision No.100 of 2024 with effect from 15 November 2024, the UAE authority has brought significant changes in the Zero-rating of supplies, particularly in the export of goods, healthcare, financial services and international transportation. In this blog, let us understand the key changes in the zero-rating of supplies in the UAE as per new Executive Regulations.
Zero-Rating of Exports: Goods and Services
Export of Goods
➞ The amendments in the Executive Regulations revised the document requirements for goods exported from the UAE.
➞ The conditions for documentation for exports have been relaxed. Businesses can now prove the export of goods by submitting customs declarations shipping certificates or clearance documents.
➞ FTA may reject the zero-rating claim if the documents submitted are incomplete or unclear.
Export of Services
➤ The definition of zero-rated services has been refined to exclude certain services that are directly linked to assets or activities in the UAE.
➤ The below services are no longer considered Zero-rated if the service recipient is non-resident:
- The services performed on the goods, either installation or repair, which are located in the UAE at the time of services.
- Means of transport (Commercial Ships/ Aircraft, vehicles which can carry more than 10 passengers) are given to a non-taxable person for lease, and the means of transport is located in the UAE at the start of the lease.
- Catering, restaurant, and hotel services are delivered in the country.
- Any Cultural, artistic, sports, and educational services conducted in the UAE.
- Real Estate-related services are provided to the property located in the UAE, including property management and maintenance.
Zero-Rating for International Transportation
➞ The amendment in the VAT Executive Regulations clarifies the conditions for qualifying local transport passengers under the zero rating.
➞ The movement of goods in UAE can qualify for Zero-rating if the final destination of movement is outside UAE and the domestic transport service is provided by the same supplier that provides the international transportation.
➞ In case the domestic transport is through a sub-contractor, the supply will be subject to 5% VAT.
➞ Services provided during international transport (Ex:- Inflight meals and entertainment ) are zero-rated only if they are supplied to the same transport service recipient
Zero-Rating of Healthcare Services
➞ To ensure affordability and accessibility, Healthcare services continue to qualify for a zero rating.
➞ The new VAT Executive Regulations amendments clarify which medical treatments, medicines and medical equipment are eligible for zero-rating.
➞ It is clarified that healthcare service providers must ensure the proper classification of their services which are subject to different VAT rates.
Zero-Rating for Financial Services
➞ The VAT treatment of financial services has been updated to include Islamic finance transactions, ensuring they receive the same tax treatment as conventional financial services.
➞ The amendments clarified that certain financial instruments including Islamic Finance qualify for exemption or zero-rating.
Government Entities and Diplomatic Missions
➠ The transactions between government entities which are related to the transfer of government-owned projects and properties are outside the scope of VAT.
➠ The conditions for VAT refunds related to foreign governments and diplomatic missions have been updated. These conditions ensure compliance and matching with international standards.
Stricter Compliance Measures
➠ The Federal Tax Authority has emphasized the importance of clear and complete documentation while classifying a transaction as Zero-rated.
➠ Non-Compliance with a lack of documentation can end up in VAT liabilities and administrative penalties.
Conclusion
While handling business transactions, it is very crucial to determine the type of supply. The wrong classification may lead either to tax liability or penalties. It is very important for businesses in the UAE to align their business transactions with the new VAT Executive Regulations to make the business compliant with the UAE VAT Law.
To learn more about Impact of VAT Amendments on Zero-Rated Supplies in the UAE, book a free consultation with one of the Flyingcolour team advisors.
Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.