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Suppliers do not charge tax on a zero-rated or exempt supply.

Understanding the Zero Rate

The zero rate applies to goods and services that are VAT taxable but have a 0% tax rate. These transactions must be recorded in the VAT account and reported in the tax return. Although the tax rate is zero, it is essential to maintain proper documentation to comply with regulations.

VAT Registration for Zero-Rated Supplies

Suppliers must register for VAT if their taxable turnover, including zero-rated supplies, exceeds AED 375,000 within a 12-month period. Alternatively, if you expect your turnover to exceed this threshold in the next 30 days, registration is mandatory.

In specific cases, a supplier may apply for an exception from VAT registration. This applies only if the supplier does not make any taxable supplies at the standard 5% rate. When granted an exception, regular tax returns are not required, and input tax recovery will not be available.

Filing Returns for Zero-Rated Supplies

If a supplier is registered but makes only zero-rated supplies, they must still file tax returns unless an exception is granted. Filing ensures compliance with UAE tax laws and enables the recovery of input tax incurred on business expenses, provided all conditions are met.

Key Compliance Tips

To simplify VAT management:

1. Maintain detailed records of all zero-rated transactions.

2. Stay informed about turnover thresholds to determine registration requirements.

3. Seek professional advice to ensure accurate filing and compliance.

Do I Need to Register for VAT if I Make Zero-Rated Supplies?

Registration for VAT is required if your taxable turnover—including zero-rated supplies—exceeds AED 375,000 within 12 months. Alternatively, if your expected taxable turnover will surpass AED 375,000 in the next 30 days, registration is also mandatory.

However, you may request an exception from registration. This option is available only if no other taxable supplies are made at the standard rate of 5%. If the exception is granted, you won’t need to file regular tax returns, and you won’t be able to recover input tax incurred.

How Can I Ensure Compliance?

To comply with VAT rules, maintain clear records of all transactions, including zero-rated supplies. Doing so will ensure a seamless reporting process and help avoid penalties. For those seeking clarity, consulting a VAT specialist can simplify the registration and reporting requirements.

Do I need to file returns if I only supply zero-rated supplies?

If you do not qualify for an exception from registration, then you must file tax returns with the FTA. You will also be entitled to recover input tax incurred on business purchases subject to the normal conditions.

What are zero-rated supplies?

Supplies subject to the zero rate are listed in Article 45 of the Federal Decree-Law no. (8) of 2017 on Value Added Tax, such as:

• Exports of goods and services.

• International transport of goods and passengers.

• Certain means of transport, such as trains, trams, vessels, airplanes.

• First sale/rent of residential buildings.

• Aircraft or vessels designated for rescue and assistance by air or sea.

• Certain investment precious metals.

• Certain healthcare services and related goods and services.

• Certain educational services and related goods and services.

Who are suppliers of zero-rated supplies?

Registrants who could be suppliers of zero-rated services and goods include exporters, real estate developers, airlines, schools, clinics, hospitals, etc.

What is exempt?

Exempt supplies are not taxable supplies for VAT purposes. VAT is not charged on exempt supplies and the supplier cannot recover any VAT on expenses incurred in making those exempt supplies. Exemptions will also be strictly applied as they are an exception to the normal rule that VAT should be charged.

If I make exempt supplies, do I need to register?

If all the supplies you make are exempt, you do not have to register for VAT. In such a case, you cannot recover tax incurred on business purchases. Examples of such would be owners of property who rent their properties for residential purposes.

What are Exempt Supplies?

Exempt supplies are listed in Article 46 of the Federal Decree-Law no. (8) of 2017 on Value Added Tax, such as:

• Financial services including life insurance and reinsurance of life insurance as well as financial services that are not conducted for an explicit fee, discount, commission, rebate or similar type of consideration.

• Residential buildings, other than the residential buildings which are specifically zero-rated.

• Bare land.

• Local passenger transport.

How Parker Randall UAE help you? 

• VAT Registration
• VAT Return Filing
• VAT Deregistration
• VAT Voluntary Disclosure
• VAT Refund Request