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1 January 2018

UAE introduces VAT

The government of the UAE have introduced value-added tax (VAT) on goods and services at 5% of their prices as of 1 January 2018. The Executive Regulations for Federal Decree-Law No. (8) of 2017 on Value Added Tax was signed in late November 2017.

In a media briefing on 12 December 2017 HE Younis Haji Al Khoori, Undersecretary of the UAE Ministry of Finance said: “Value-added tax plays a key role in achieving the leadership's vision of reducing oil dependency and building a sustainable knowledge economy. This will contribute to advancing development by providing additional sources of income for the expansion of infrastructure projects.

“VAT was introduced in the UAE after in-depth studies indicating that there would be no impact on the business sector and the investment environment in the country, nor would it affect the country’s position and competitiveness should it be implemented. In fact the UAE will implement the lowest VAT tax rate on a global level, with the aim of reaching the highest levels of happiness within the UAE community.”

Tourists will also pay VAT, but foreign businesses may recover the VAT they incur when visiting the UAE.

Businesses with turnover below AED375,000 are not required to register for VAT, but voluntary registration is accepted if the turnover exceeds AED187,500 and is below AED375,000.


Several products and services are exempt from value added tax, namely: the supply of certain financial services as specified in the Executive Regulations, the supply of residential (non-zero-rated) buildings either by sale or lease, the supply of bare land, and the supply of local passenger transport. In early December, the UAE Federal Tax Authority stated that selected sectors that will be assigned zero-rated tax, such as education, healthcare, oil and gas, transportation and real estate.

Examples provided by the Tax Authority include:


Education VAT rateVAT rate
Private and public school education (excluding higher education) and related goods and services provided by education institution0%
Higher education provided by institution owned by government or 50% funded by government, and related goods and services0%
Education provided by private higher educational institutions, and related goods and services5%
Nursery education and pre-school education0%
School uniforms5%
Stationery5%
Electronic equipment (tablets, laptops, etc.)5%
Renting of school grounds for events5%
After school activities for extra fee5%
After school activities supplied by teachers and not for extra charge0%
School trips where purpose is educational and within curriculum0%
School trips for recreation or not within curriculum5%
HealthcareVAT rate
Preventive healthcare services including vaccinations0%
Healthcare services aimed at treatment of humans including medical services and dental services0%
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 Decision0%
Medicines and medical equipment not listed in Cabinet Decision5%
Other medical supplies5%
Oil and gasVAT rate
Crude oil and natural gas0%
Other oil and gas products including petrol at the pump5%
TransportationVAT rate
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 passengers0%
Real estateVAT rate
Sale and rent of commercial buildings (not residential buildings)5%
First sale/rent of residential building after completion of construction or conversion0%
First sale of charitable building0%
Sale/rent of residential buildings subsequent to first supplyExempt
Hotels, motels and serviced accommodation5%
Bare landExempt
Land (not bare land)5%
UAE citizen building own home5% (recoverable)
Financial servicesVAT 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 similar5%
Interest on forms of lending (including loans, credit cards, finance leasing)Exempt
Issue, allotment or transfer of an equity or debt securityExempt
Investment gold, silver and platinum, jewelleryVAT rate
≥99% pure and tradable in global markets0%
<99% pure5%
Jewellery5%
Insurance and ReinsuranceVAT rate
Insurance and reinsurance (including health, motor, property, etc)5%
Life insurance and life reinsuranceExempt
Food & BeveragesVAT rate
Food and beverages5%
Telecommunications and electronic servicesVAT rate
Wired and wireless telecommunications and electronic services5%
Government activitiesVAT rate
Sovereign activities which are not in competition with the private sector undertaken by designated government bodiesConsidered outside VAT system
Activities that are not sovereign or are in competition with the private sectorVAT rate dependent on good/service ignoring provider
Not for Profit OrganisationsVAT 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 DecisionConsidered outside VAT system
Activities of other not for profit organisations (not listed in Cabinet Decision) which are not business activitiesConsidered outside VAT system
Business activities undertaken by the above organisationsVAT rate dependent on good/service ignoring provider
Free zonesVAT rate
Supplies of goods between businesses in designated zonesConsidered outside VAT system
Supplies of services between businesses in designated zonesVAT rate dependent on service ignoring location
Supplies of goods and services in non-designated zonesVAT rate dependent on good/service ignoring location
Supplies of goods and services from mainland to designated zones or designated zones to mainlandVAT rate dependent on good/service ignoring location
OtherVAT rate
Export of goods and services to outside the GCC implementing states0%
Activities undertaken by employees in the course of their employment, including salariesConsidered outside VAT system
Supplies between members of a single tax groupConsidered outside VAT system
Any supplies of services or goods not mentioned above (includes any items sold in the UAE or service provided)5%
Secondhand goods (e.g. used cars sold by retailers), antiques and collectors’ items5% of the profit margin
In late December 2017 the Federal Tax Authority also clarified that diplomatic missions and international organisations that do not conduct business will be registered in a system that does not require a tax registration number (TRN). International organisations that do conduct business, import and export on regular basis should however register for VAT.

WAM, the Emirates news agency, also reported on 1 January the Ministry of Finance's assurance that the Federal Financial System is ready to manage all financial transactions related to VAT. The Federal Financial System is an integrated financial system that enables the ministry to finance federal entities, manage and govern financial procedures, and monitor the spending of federal entities.

Explore:

Ministry of Finance FAQ on VAT

Useful links for VAT

Deloitte has prepared a free VAT in the GCC Guide mobile app, which can be downloaded on the Apple and Google app stores

Read PwC's discussion on VAT and the movement of goods between UAE and KSA

Some businesses have already made statements online about VAT, including insurance firm AIG, telco Etisalat, e-marketplace Souq.com, and logistics firm TNT.
Posted by J Tang at 23:30
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Labels: finance, tax, UAE
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