Zero VAT Rate – Recent Amendments

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The FTA of the UAE recently announced significant amendments to the Executive Regulation of Federal Decree-Law No. (8) of 2017 on VAT. Published on 2 October 2024, through the, these amendments are set to come into force on 15 November 2024. 

Some of the key amendments relate to zero-rated goods and services. In this write-up, we have discussed these amendments and the eligibility conditions for applying the 0% VAT rate. 

Understanding 0% Rate under VAT

The 0% rate applies to certain goods and services, meaning that no VAT is charged on sales. However, businesses supplying these zero-rated goods/services can still claim input tax on VAT paid for purchases related to these supplies. This maintains cash flow and encourages specific sectors like healthcare, education, and exports. The key implication is that businesses remain VAT-registered, but their output tax is zero, while they can recover VAT incurred on inputs.

Export of Goods

The export of goods and services from the UAE is generally subject to a 0% VAT rate. This includes both direct and indirect exports of goods, provided specific conditions are met. 

The Cabinet Decision has amended, or rather expanded, the list of documents acceptable for claiming the 0% VAT rate, viz.:

• A customs declaration, and Commercial Evidence that proves the export;
  
  
• A Shipping Certificate and Official Evidence that prove the export; or
  
  
• A customs declaration that proves the suspension arrangement of customs duties, in case the goods are put into customs suspension.

The Decision also defines the concepts of Official Evidence and Commercial Evidence for the benefit of the exporters. 

Export of Services

The Decision clarifies that services will not be considered as exports if their place of supply is considered to be in the UAE. This amendment is in line with global VAT regulations on export of services. 

International Transport

International transport services for both passengers and goods are zero-rated. This includes transportation from the UAE to a place outside the state, or from a foreign location into the UAE. The transport service must be part of an international movement, and evidence of international travel or shipping is required.

Further, the import or supply of specific means of transport used for commercial purposes is zero-rated. This includes aircraft, ships, and buses designed for mass transportation. The transport must be intended for commercial use and cannot be for recreational purposes.

Healthcare Services

Healthcare services provided by licensed institutions or professionals, including preventive care, are zero-rated to ensure public access to essential healthcare without the burden of VAT. The service must be provided by a licensed healthcare provider and must contribute to the recipient's wellbeing. Cosmetic treatments not medically necessary are excluded.

Education Services

Education services recognized by federal or local authorities, such as schools and higher education institutions, are eligible for zero-rated VAT. This requires that the institution must be government-recognized, and the services must align with a prescribed curriculum.

Precious Metals

Gold, silver, and platinum that meet certain purity standards are considered investment-grade and are zero-rated (i.e., their supply and import is zero-rated). The metals must have a purity of 99% or more and must be tradeable in global bullion markets.

Residential Buildings

The first supply of residential buildings within three years of completion is zero-rated. This encourages housing development while reducing the tax burden on individuals purchasing homes. For this purpose, the property must be used as a residence and should not include serviced apartments or buildings used for temporary accommodation like hotels.

Charity-Related Buildings

Buildings designed for charitable activities and leased or sold for such purposes can benefit from a zero VAT rate. Such a building must be specifically constructed for charitable purposes and must be used solely for relevant charitable activities.

Telecommunication Services

Telecommunication services provided to international clients or other telecom providers based outside the UAE are zero-rated. The service must be provided to a client outside the UAE, and documentation proving the service’s international use is required.

Conclusion

The application of zero-rated VAT for specific goods and services helps boost vital sectors like exports, healthcare, education, and international transport. Businesses operating in these areas must ensure they meet the eligibility criteria to benefit from the 0% VAT rate. Proper documentation and compliance with the legal requirements will allow businesses to take advantage of the favorable tax regime. 

Disclaimer: Content posted is for informational and knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice