Difference Between Zero-Rated and VAT-Exempt

1
Difference Between Zero-Rated and
VAT-Exempt
2
When charging Value Added Tax or VAT in UAE,
rates that are charged
greatly depend upon what the products or
services are. The majority of items in the
country are subject to 5 VAT, which is currently
the standard rate. However, there are two other
categories VAT-exempt and zero-rated VAT.
3
These two categories often cause confusion to
business owners as they appear like theyre one
and therefore the same. They actually differ
from one another as they differ in their
treatment in terms of accounting. We will
specialize in them for this text so as to assist
you to avoid getting penalized for errors in VAT
accounting and reporting
4
VAT-exempt and Zero-rated VAT
The easiest way in explaining how zero- rated
VAT differs from VAT exemption is by comparing
the two categories.
5
What is zero- rated VAT in UAE?
6
Goods and services that are under zero- rated
for VAT purposes are still goods that are
taxable. However, the rate for VAT is charged at
zero percent. Goods and services which
fall into this category are as follows
7

• Products and services Export that are outside
  any GCC implementing state
• Investment in jewelry, platinum, silver, and
  goal with greater than ninety-nine percent
  purity and tradable in the global markets
• The first sale of a charitable real estate or
  building Sale or rent of residential property for
  the First time after the completion of the
  conversion or construction

8

• International transportation of goods and
  passengers including intra-GCC
• Supply of products and services that are related
  to their means of transport, including
  transportation of products and passengers Supply
  of means of air, land, sea transport for
  commercial transport of products and passengers
  of over ten people
• Natural gas and crude oil

9

• Medical equipment and medicines that arent
  listed within the Cabinet Decision
• Healthcare or medical services that are aimed at
  treatment for residents including dental
  services
• Preventative healthcare services (includes
  vaccinations)
• School trips where the aim is within the
  curriculum and academic

10

• After school activities that are supplied by
  teachers with no extra charge
• Preschool education and nursery education Higher
  education thats provided by an establishment
  which is owned by the UAE
• Government or one-half funded by the government,
  including all the related products and services
• Public and school education under-covered in
  Private with the exemption of higher education
• (includes all related products and services with
  are provided by the educational institution)

11
What is VAT exempt in UAE?
12
VAT exempt products and services arent taxable.
No VAT should be charged. Goods and service
falling into this category are as follows
13

• Life reinsurance and life insurance
• Debt security or equity Issue, transfer, or
  allotment
• Interest on any quiet lending including credit
  cards, loans, and finance leasing
• Margin based products that dont have a
  commission, discount, rebate, explicit
• fee, or similar

14

• Bare land
• Sale or rent of a residential property
  subsequent to the first supply
• Domestic passenger transport (includes flights
  that are in UAE)

15
So, How do the two categories differ?
16
A business that sells goods and services which
fall in the category, zero rated for VAT
purposes, will be able to benefit from VAT
registration and being a business thats
registered for VAT. This is thanks to how it
should affect both output and input tax
17
VAT a business pays on products and services
which it purchases is called input tax When a
business thats registered for VAT charges VAT
for a taxable sale, its mentioned as output
tax. Businesses essentially collect the VAT
thats paid by customers then pass the quantity
collected to the Federal Tax Authority when it
pays the VAT bill during the VAT return filing
Services in UAE.
18
This has a crucial effect on the VAT return of
the business
19

• If a business is registered for VAT and it pays
  more VAT for goods and services which it
  purchases than It gets on sales, this particular
  business is going to be able to reclaim the
  difference for what its paid also as whats been
  collected.
• For a business thats registered for VAT and
  collects more tax on the sales instead of pays on
  goods and services that are for the business,
  this particular business has to pay to the FTA
  the difference.

20

• The crucial thing to remember is the fact that
  items considered as zero-rated dont incur a
  charge as VAT is at zero percent. When a business
  is merely selling zero-rated items, the VAT
  thats paid on items it purchases are going to
  be more compared to the VAT that it collects from
  its clients or customers. The business will be
  able to claim this difference from the tax
  authority.