The UAE is just weeks away from implementing value-added tax (VAT), and up until now, we’ve had only a rough idea of the goods and services that will see the tax levied on them.
But ahead of the weekend, the UAE’s Federal Tax Authority (FTA) released a comprehensive document that explains exactly which supplies will be subject to 5% VAT come January 1.
So, obviously, you want to know what won’t be taxed. Well, handily, the FTA broke down the supplies by industry. So in education, for example, private and public school education, along with related goods and services provided by the educational institution will come with a 0% rate. This means prices won’t be affected by VAT.
However, university education is a little different. Only higher education provided by institutions either owned, or 50% funded, by the government will by zero-rated. Other universities will have the 5% added to their fees, goods and services.
Nursery education, however, will be zero-rated, meaning prices won’t be affected.
Healthcare is a largely VAT-free zone, too. The only healthcare services that will be taxed are ones that are not for treatment and are not preventative – so, for example, cosmetic surgery. Some medicines and medical equipment will also be subject to 5% VAT. Otherwise, though, it looks like healthcare won’t get much more expensive.
Unfortunately, petrol at the pump will be taxed at 5%. However, other forms of public transport, including flights within and out of the UAE, will be zero-rated.
In terms of real estate, you’re looking at a 5% tax if you’re involved in the sale and rent of commercial buildings, but the first sale or rent of a residential building after completion will be zero-rated. However, hotels, motels and serviced accommodation will all be subject to the 5% tax.
Financial services are also affected in some areas. For example, if your bank charges you a specific fee for a service – say, a AED 30 fee for making a transfer – you’ll have 5% VAT added onto that. However, interest payments are exempt from VAT, as are the issue, allotment or transfer of equities and debt securities.
When it comes to your car insurance, however, you will have to pay 5% VAT. Indeed, the only insurance payments that’ll be exempt from the tax are payments for life insurance and life reinsurance.
As far as food and beverages go, it looks like there won’t be any exemptions. The FTA’s notice simply says that food and beverages will be charged at 5% VAT. The same goes for wired and wireless telecoms services.
Free zones are an interesting one under the rules that will come into effect one January 1. Apparently, the supplies of goods between businesses in the same free zone will be considered outside the VAT system. However, the supply of services between those companies will have VAT applied to them depending on what sort of service it is. The same goes for goods and services that go between non-free zones.
Elsewhere, it looks like second-hand goods will also be taxed at 5% if sold through businesses. But the tax will only apply to the profit margin. So if you’re buying a car from a second-hand car dealership, you can expect to pay 5% VAT on the money that the dealer has made as a profit from the sale. As an aside, this is, in a way, good for consumers, because you’re not paying 5% on the full price of the car, and it gives you a way to work out how much profit the dealer is making. Meanwhile, it appears that the private sale of cars won’t be taxed.
Here’s the full breakdown provided by the UAE’s FTA.
|Education VAT rate||VAT rate|
|Private and public school education (excluding higher education) and related goods and services provided by education institution||0%|
|Higher education provided by institution owned by government or 50% funded by government, and related goods and services||0%|
|Education provided by private higher educational institutions, and related goods and services||5%|
|Nursery education and pre-school education||0%|
|Electronic equipment (tablets, laptops, etc.)||5%|
|Renting of school grounds for events||5%|
|After school activities for extra fee||5%|
|After school activities supplied by teachers and not for extra charge||0%|
|School trips where purpose is educational and within curriculum||0%|
|School trips for recreation or not within curriculum||5%|
|Preventive healthcare services including vaccinations||0%|
|Healthcare services aimed at treatment of humans including medical services and dental services||0%|
|Other healthcare services that are not for treatment and are not preventive (e.g. elective, cosmetic, etc)||5%|
|Medicines and medical equipment as listed in Cabinet Decision||0%|
|Medicines and medical equipment not listed in Cabinet Decision||5%|
|Other medical supplies||5%|
|Oil and Gas||VAT rate|
|Crude oil and natural gas||0%|
|Other oil and gas products including petrol at the pump||5%|
|Domestic passenger transportation (including flights within UAE)||Exempt|
|International transportation of passengers and goods (including intra-GCC)||0%|
|Supply of a means of transport (air, sea and land) for the commercial transportation of goods and passengers (over 10 people)||0%|
|Supply of goods and services relating to these means of transport and to the transportation of goods and passengers||0%|
|Real estate||VAT rate|
|Sale and rent of commercial buildings (not residential buildings)||5%|
|First sale/rent of residential building after completion of construction or conversion||0%|
|First sale of charitable building||0%|
|Sale/rent of residential buildings subsequent to first supply||Exempt|
|Hotels, motels and serviced accommodation||5%|
|Land (not bare land)||5%|
|UAE citizen building own home||5% (recoverable)|
|Financial services||VAT rate|
|Margin based products (products not having an explicit fee, commission, rebate, discount or similar)||Exempt|
|Products with an explicit fee, commission, rebate, discount or similar||5%|
|Interest on forms of lending (including loans, credit cards, finance leasing)||Exempt|
|Issue, allotment or transfer of an equity or debt security||Exempt|
|Investment gold, silver and platinum, jewellery||VAT rate|
|≥99% pure and tradable in global markets||0%|
|Insurance and Reinsurance||VAT rate|
|Insurance and reinsurance (including health, motor, property, etc)||5%|
|Life insurance and life reinsurance||Exempt|
|Food & Beverages||VAT rate|
|Food and beverages||5%|
|Telecommunications and electronic services||VAT rate|
|Wired and wireless telecommunications and electronic services||5%|
|Government activities||VAT rate|
|Sovereign activities which are not in competition with the private sector undertaken by designated government bodies||Considered outside VAT system|
|Activities that are not sovereign or are in competition with the private sector||VAT rate dependent on good/service ignoring provider|
|Not for Profit Organizations||VAT rate|
|Activities of foreign governments, international organisations, diplomatic bodies and missions acting as such (if not in business in the UAE)||Considered outside VAT system|
|Charitable activities undertaken by societies and associations of public welfare which are listed by Cabinet Decision||Considered outside VAT system|
|Activities of other not for profit organizations (not listed in Cabinet Decision) which are not business activities||Considered outside VAT system|
|Business activities undertaken by the above organizations||VAT rate dependent on good/service ignoring provider|
|Free zones||VAT rate|
|Supplies of goods between businesses in designated zones||Considered outside VAT system|
|Supplies of services between businesses in designated zones||VAT rate dependent on service ignoring location|
|Supplies of goods and services in non-designated zones||VAT rate dependent on good/service ignoring location|
|Supplies of goods and services from mainland to designated zones or designated zones to mainland||VAT rate dependent on good/service ignoring location|
|Export of goods and services to outside the GCC implementing states||0%|
|Activities undertaken by employees in the course of their employment, including salaries||Considered outside VAT system|
|Supplies between members of a single tax group||Considered outside VAT system|
|Any supplies of services or goods not mentioned above (includes any items sold in the UAE or service provided)||5%|
|Second hand goods (e.g. used cars sold by retailers), antiques and collectors’ items||5% of the profit margin|