What are Exempt Supplies in UAE VAT?

By definition, exempt supplies refer to the 'supply of goods or services for consideration while conducting business in the State, where no tax is due and no Input Tax may be recovered except according to the provisions of the Decree-Law'. In simple words, there are certain exempted goods or services notified in UAE executive regulations, on which VAT is not levied. This means, that on supplying these goods or services, VAT is not charged.

On the other hand, businesses supplying these exempted goods or services will not be allowed to claim the input tax paid on your purchases. For example, you have paid VAT at 5% on the purchase of raw materials and assume, finished goods produced using raw material is exempted. Now, you will be not allowed to claim the 5% Input VAT paid on your purchases and it should be treated as a cost of the product.

List of Exempted Goods and Services

Broadly, VAT exemptions in UAE are given for certain financial services, residential building, and supply of bare land, local passengers, and so on. However, to consider supply as exempted from the VAT, the specific conditions mentioned in the UAE VAT Act and Executive Regulations need to be fulfilled.

The following is the list of exempted goods and services:

• Financial Services

The following financial services are under VAT exemption supplies:

1. Financial services that are not conducted in return for an explicit fee, discount, commission, rebate, or any similar return are exempted.

2. The issue, allotment, or transfer of ownership of an equity security or debt security is exempted from VAT Rate

3. The provision or transfer of ownership of a life insurance contract or the provision of re-insurance in respect of any such contract is under VAT exempted list

• Residential Buildings

The supply of residential buildings is under VAT exemption subject to the following conditions:

1. The lease is more than 6 months or

2. The tenant of the property is a holder of an ID card issued by the Emirates Identity Authority

The period of tenancy referred to above will be identified with reference to the contractual period of tenancy and it will include any period arising from a right or option to extend the period of tenancy or renew the tenancy.

Here, residential buildings refer to buildings intended and designed for human occupation which includes principal place of residence, residential accommodation for students or school pupils, armed forces and police, orphanages, nursing homes, and rest homes.

Broadly, all residential accommodations that are within the definition of residential building and satisfy the above conditions are exempted from VAT.

Are there any buildings that are not considered residential buildings?

Yes, all the non-residential accommodations are not considered as residential buildings. The following are the instances of buildings that are not considered residential buildings:

· Any place that is not a building fixed to the ground and can be moved without being damaged

· Any building that is used as a hotel, motel, bed and breakfast establishment, or hospital or the like

· A serviced apartment in which services in addition to the supply of accommodation are provided

· Any building constructed or converted without lawful authority In all the above cases, VAT @ 5% will be applicable.

In all the above cases, VAT @ 5% will be applicable

Written By CA Adarsh Janardhanan ACA

Expandx Tax Consultants