Importance of Zero-Rated Supplies For Registering A Company With VAT

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The United Arab Emirates considers certain commodities necessary for its economic growth and its citizens to exist as zero-rated supplies for UAE-VAT purposes. The Federal Tax Authority (FTA) allows businesses in the UAE to claim a refund of the input tax they pay while trading in these essential goods and services.

The FTA will approve the reclaim only if the assessee (taxpayer) in UAE shows the percentage of chargeable VAT as 0%. 

The UAE-VAT authorities thoroughly check the sale invoices and other related documents to ascertain a zero VAT rating on the supplies to accept the claim before refunding already paid input tax.

Let's discuss zero-rated and exempt goods in tax returns in this article.

Decree of the Federal Tax Authority (FTA) Concerning Zero-Rating (Services)

In a recent public clarification concerning the export of services, the FTA referred to in its Federal Decree-Law No. 8 of 2017 regarding VAT ("the regulations") in Article 31(2) on the Export of Services rules to state the following:

"For paragraph (a) of Clause 1 of this Article, a person shall be considered as being "outside the State" if they only have a short-term presence in the State of less than a month and the presence is not effectively connected with the supply."

In other words, as per the amendments, all supplies of services by persons who reside outside UAE or were not in the county while delivering the service give it a zero VAT rating.

To comply with UAE-VAT, taxpayers must submit a VAT return form 201 after filling in details about exemption and supplies with zero ratings in a box with the numbers 4 and 5.

The amendment also details relevant information about the taxpayer's responsibilities in supporting FTA in verifying the contextual factors of a transaction. The FTA applies the zero VAT rating only after meeting all deciding criteria.

UAE's Zero-Rated Supplies and its Meaning

Most countries that impose VAT taxes declare that some goods and services have zero VAT ratings. The VAT levy in UAE also on some products and services is 0%, and such goods and services are zero-rated supplies in the UAE. 

Although from 2018 UAE allows VAT application on a majority of the goods and services, they have specific products and services that attract zero percent VAT tax. In contrast, certain products are also entirely exempted, as mentioned below.

According to the declaration for FTA, the following businesses are exempt or have zero VAT tax ranking. Check the list below to know them.

  • All basic healthcare services
  • All basic educational services
  • The goods and services from beyond the Gulf Cooperation Council (GCC).
  • Precious metals for investment purposes like gold, silver, and platinum 
  • International conveyance like air travel for passengers beyond UAE.  
  • While a new residential property sold for the first time within three years after construction will be taxable per UAE-VAT compliance, there will not be a VAT tax levy on its subsequent sale or lease.

Conclusion

It is necessary to increase their client identification methods and renew or revise contracts to scrutinize them to ensure effective and accurate implementation, primarily if it provides services to foreign clients.

It is also advisable for firms to alter their auditing processes via an audit trail to show that the establishment has appropriately applied UAE-VAT to their zero-rated supplies.

Flyingcolour's tax consultants and VAT technicians can help you apply for VAT registration and file returns for zero VAT-rated supplies irrespective of whether they are products and services.

Book your free consultation with us to know more about the comprehensive services.

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