Zero Related Supplies in UAE
Numerous countries incorporate preferential tax treatments for certain supplies and services within their tax laws, often designating them as zero-rated or tax-exempt. This is done with the intention of alleviating the tax burden on citizens engaged in business activities. Zero tax refers to the absence of taxation on goods and services specified under relevant legal frameworks within tax legislation. These include a wide range of items such as exported goods, medical equipment, healthcare services, and educational services. We will now delve into a detailed examination of the goods eligible for zero rating as outlined in the Federal Decree Law of 2017 and the recent amendments to the VAT Law in the UAE, as stipulated in the Federal Decree Law of 2022.
Zero-Rated Goods
We differentiate below between goods that are exported directly and goods that are exported indirectly, and in both cases outside the applicable countries.
Conditions for Subjecting Direct Export to a Zero-Rate
The goods must be physically transported to a place outside the applicable countries, or these goods must be placed in a state of suspension of customs duties in accordance with the unified customs law among the countries of GCC, within a period of (90) days from the date on which the supply was made.
The exporter maintains official and commercial evidence that can prove the export or suspended status.
Conditions for Subjecting Indirect Export to a Zero-Rate
The goods must have been actually transported outside the implementing countries or placed in a state of suspension of customs duties in accordance with the unified customs law among the countries of GCC, within (90) days from the date on which the supply was made according to the arrangements that were agreed upon between the external customer. And the supplier on the date of supply or before
The external customer must have official and commercial evidence that would prove the export or suspended status, and must provide a copy of this evidence to the supplier.
Not to use or make any change to the goods during the period between supply and export or suspension, with the exception of what is necessary to prepare the goods for export or place them in suspension.
Goods shall not leave the country accompanied by a passenger on the ship or aircraft or a member of its crew
Zero-Rated Goods
- Supply or import operations for land, sea and air transport that are used to transport passengers
- Supply or import operations of the goods specified above and related to the aforementioned means of transport
- Supply or import operations for natural gas or crude oil
- Supply and import operations for goods related to preventive and basic health care services.
Zero-Rated Medicines and Medical Equipment
The Cabinet Resolution of 2017 stipulated that the zero rate be applied with regard to the supply of medicines and medical equipment registered with the Ministry of Health and Community Protection or that are imported with prior permission or approval from it.
It is worth noting that the Council of Ministers in UAE had previously issued a decision in 2020, which included applying a zero rate to personal protective equipment used to prevent the Covid-19 virus, provided that the supply and import of such equipment took place within six months from the date of issuance the decision.
Zero-Rating Precious Metals
The supply of precious metals for investment purposes is subject to a zero rate, as the executive regulations of the federal decree law regarding VAT have defined what is meant by the term investment precious metals, as they indicate that they are all gold, platinum, and silver, and the following standards apply to them:
- The purity of the metals must be 99 percent or more.
- The metals are tradable in global bullion markets.
Applying Zero-Rates to some Modes of Transport
Distinguishing Criteria for Zero-Rate VAT Eligibility
The zero-rate is applied to cases related to the supply of an aircraft that has been designed or configured for use in the commercial transport of passengers and goods. But what is designed for the purpose of entertainment, pleasure, or sports, the zero rate is not applied to it.
Goods that are supplied for the purpose of repairing, operating, maintaining or converting these means of transport, with the exception of fuel and oil and gas products, provided that the use of the specified goods is in accordance with the following conditions: needs with hand count increases Scales seamlessly with business growth Focus Distracts from core capabilities.
- These goods must be included in, attached to, or become part of the means of transport.
- To be used directly as consumer goods in the process of repair, operation, maintenance or conversion, as a result of which they become unusable or of little value.
Zero-Rating Goods Related to Education
- The zero-rate is applied to goods provided by the educational institution in accordance with the academic curriculum recognized by the competent government authority. The same applies to reading materials, whether printed or electronic, which the educational institution also provides.
- Goods that the educational institution provides to non-members. The same applies to non-educational goods, provided that they are transferred or consumed by students enjoying the educational service for educational purposes.
- Uniforms or other clothing that the educational institution requires students to wear, whether or not they were supplied by the educational institution as part of educational services.
- Electronic devices related to educational services, as well as food and beverages supplied to the educational institution.
Applying Zero-Rate to Residential and Converted Buildings and Buildings that are Designed Specifically for the Use of Charitable Organizations
Residential Buildings
The zero rate is applied to buildings occupied by people as their main place of residence and to housing allocated to students or schoolchildren, as well as to housing allocated to the armed forces and security forces, and homes for the elderly.
Outside the scope of a residential building are buildings that are used as a hotel, hospital, or the like.
Converted Residential Buildings
This applies to the first supply of any building or part thereof that has been converted into a residential building, provided that the supply takes place within three years from the date of completion of the conversion, and that the building or any part thereof has not been used as a residential building during the previous five years from the start of the conversion work.
Buildings that were Designed Specifically for the Use of Charities
This applies to the first sale or lease of a building or part of it, provided that it is designed to be used by a charitable organization. The activity is charitable only.
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