In the UAE, there is a five percent (5%) value-added tax (VAT) on imports and supplies of goods and services. VAT is a type of consumption tax. However, there is a range of goods and services that are exempted from the payment of VAT. The Executive Regulation on VAT exempts some financial services, residential buildings, bare land supply, local passenger transport services, etc. Although to be eligible for VAT exemption, the services and goods require to fulfill certain conditions set forth by the VAT Law.
According to the Executive Regulation on VAT, Financial Services are the services connected to dealings in money or its equivalent and providing credit, Exchange of currency, operation of any current, deposit, or savings account, provision of any loan, provision or transfer of ownership of financial instruments, etc. are few of the examples exempted from VAT if such financial services fulfill the following conditions, if
- Financial services are not conducted in return for an explicit fee, discount, commission, rebate, or similar.
- The issuance, allotment, or transfer of ownership of an equity security or debt security.
- The delivery or transfer of ownership of a life insurance contract or the provision of re-insurance in respect of any such contract shall be exempted from the VAT.
The above-mentioned financial services shall be liable to tax if the consideration paid regarding a supply of services is an explicit fee, commission, discount, rebate, etc., shall not be exempted from VAT.
Residential buildings mean any building intended for human accommodation for a certain period, excluding hotel, motel, hotel apartments, restaurants, hospital, or similar buildings, shall not be exempted from VAT. The supply of residential buildings is exempted from VAT if the lease of such building is for more than six months or the tenant’s ID card is issued by the Federal Authority for Identity and Citizenship (FAIC). The period of tenancy will be determined and defined by the lease contract between the parties. The option of terminating the lease early by any party will be ignored.
Bare land means any land which is not occupied by any building partially or entirely or any civil engineering works. Such bare lands would be exempted from the provision of VAT.
Local passenger transport services
The supply of local passenger transport services either by land, by air, or water within the State from one place to another shall be exempted from VAT. Land and water transport means such as taxi, bus, railway train, tram, monorail or similar means of transport, ferry boat, abra or other similar vessel designed or adapted for the transport of passengers VAT exempted means. The transport of passengers in the context of a pleasure trip, where the principal objective of the trip may reasonably be said to be sightseeing, or the enjoyment of catering services, or other forms of pleasure or entertainment, such transport services are not exempted from VAT, and 5% VAT shall be levied on them.
The means of air transport service such as helicopter or airplane intended or adapted for the transport of passengers and permitted for transport of passengers within the State under the Civil Aviation Act’s approval are exempted from VAT. Nevertheless, if the helicopter or aircraft is carrying an international carriage, then such transport service will be liable for 5% VAT; it shall not be included in the category of VAT exemption.
VAT shall not be levied on the import of goods that are exempted from Customs duty as per the GCC Common Customs Law, such as goods imported by the military forces and internal security forces, personal effects, and gifts accompanied by travelers. Personal items and household items transported by UAE nationals living abroad on return or expats moving to live in the UAE for the first time or the returned goods are also exempted from VAT.