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Supply under VAT in the United Arab Emirates: FAQs
What is a supply?
Supply refers to goods or services that are exchanged for consideration (payment). Supply occurs when there’s a transaction between two people and at least one of them is a registered taxpayer. Supply includes buying, selling and stock transfers, even if there is no exchange of money.
What are the types of supply?
Taxable supply: When a supply takes place within the UAE, it falls within the scope of the UAE VAT, and will be considered taxable supply.
Out-of-scope supply: When a supply takes place outside the UAE, it is outside the scope of the UAE VAT.
Do I need to pay VAT on sale or purchase of pre-owned goods?
Yes, the Federal Tax Authority (FTA) has issued guidelines to charge 5% VAT on sale or purchase of pre-owned goods such as vehicles and furnitures. However, the amount on which VAT to be levied depends on when the item was purchased.
If the item was purchased before VAT was implemented (January 1st, 2018) and is sold anytime after that, the VAT needs to be applied on the total selling price.
If an item was purchased and sold after VAT was implemented, then VAT needs to be applied on the profit margin. The VAT will be levied on the profit margin, since the seller of the pre-owned goods would have already been taxed at the time of purchase.
Pre-owned goods imported into UAE doesn’t qualify for this scheme. Import of pre-owned goods are always subject to VAT on the total price.
What are the VAT rates in the education sector?
| Type of supply | VAT rate |
|---|---|
| Nursery education and pre-school education | 0% |
| Private and public school education (excluding higher education) | 0% |
| Supply of goods and services related to public and private schools (for example, books) | 0% |
| Higher education provided by an institution owned or 50% funded by the government, and related goods and services | 0% |
| Education provided by private higher educational institutions | 5% |
| Supply of goods and services related to private higher educational institutions (for example, books) | 5% |
| Exam fees | 0% |
| School uniforms | 5% |
| Stationery | 5% |
| Electronic equipment (such as tablets or laptops) | 5% |
| Renting of school grounds for events | 5% |
| Fees for activities after school | 5% |
| Activities supplied after school by teachers without any extra charge | 0% |
| School trips for educational purposes within the curriculum | 0% |
| School trips for recreation | 5% |
| School trips not within the curriculum | 5% |
What are the VAT rates for oil and gas?
| Type of supply | VAT rate |
|---|---|
| Crude oil and natural gas | 0% |
| Other oil and gas products, including petrol at petrol stations | 5% |
What are the VAT rates in the transportation sector?
| Type of supply | VAT 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 or 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 passengers | 0% |
What are the VAT rates for financial services?
| Type of supply | VAT 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 similar | 5% |
| Interest on forms of lending (including loans, credit cards, and finance leasing) | Exempt |
| Issue, allotment or transfer of an equity or debt security | Exempt |
What are the VAT rates for investment metals (gold, silver and platinum) and jewellery?
| Type of supply | VAT rate |
|---|---|
| ≥ 99% pure and tradable in global markets | 0% |
| < 99% pure | 5% |
| Jewellery | 5% |
What are the VAT rates for insurance and reinsurance?
| Type of supply | VAT rate |
|---|---|
| Insurance and reinsurance (including health, motor, property, etc) | 5% |
| Life insurance and life reinsurance | Exempt |
What are the VAT rates for food and beverages?
Food and beverages are taxed at 5%.
What are the VAT rates for telecommunications and electronic services?
Wired and wireless telecommunications are taxed at 5%.
What are the VAT rates for government services?
| Type of government activity | VAT rate |
|---|---|
| Sovereign activities which are not in competition with the private sector undertaken by designated government bodies | Considered outside VAT system |
| Activities that are not sovereign or are in competition with the private sector | VAT rate dependent on good/service, regardless of provider |
What are the VAT rates for nonprofit organizations?
| Type of not-for-profit activity | VAT 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 in the Cabinet Decision | Considered outside VAT system |
| Activities of other not-for-profit organizations (not listed in the Cabinet Decision), which are not business activities | Considered outside VAT system |
| Business activities undertaken by the above organizations | VAT rate dependent on good/service, regardless of provider |
How does VAT affect activities undertaken by employees in the course of their employment, including salaries?
These activities and payments are out of the scope of VAT.
How does VAT affect supplies between members of a single tax group?
These supplies are out of the scope of VAT.
What are the VAT rates for secondhand goods, antiques and collector’s items?
Secondhand goods (including cars sold by retailers), antiques, and collections are taxed at 5% of the profit margin.
Is online shopping taxable?
Yes, online shopping is taxed at 5%.
How is VAT calculated with discounts?
VAT is calculated on the discounted price of the product.
For example, if the price of an item is 110 AED and the seller gives a discount of 10 AED, then the VAT on the product is 5% of 100 AED. The total cost of the product would be 120 AED (100 AED purchase price + 20 AED of VAT).
Are loans and other processing charges subject to VAT?
Loans are not subject to VAT under UAE, but the processing charges are subject to 5% VAT.
What is the place of supply?
The place of supply is a component of supply that determines where a transaction has occurred for VAT purposes.
How is the place of supply determined for goods and services?
For a supply of goods, the place of supply is the location of the goods when the supply occurs. So, if the goods are located in the UAE during the supply, then they’re treated as supplied in the UAE and they are taxable under UAE VAT. If the goods are located outside the UAE during the supply, they’re treated as an out-of-scope supply. Special rules apply when there is a cross-border supply, a supply of water and energy, or a supply of real estate.
For a supply of services, the place of supply is the location of the supplier. Special rules apply when there is a cross-border supply between businesses or a supply of electronic services.
What is the place of supply for goods exported from the UAE to non-GCC member states?
If goods are exported from the UAE to a non-GCC member state, then the place of supply is the UAE.
What is the place of supply for goods exported from the UAE to other GCC member states?
If goods are exported from the UAE to other GCC member states, the place of supply depends on the VAT registration status of the recipient:
- If the recipient is registered under VAT, then the place of supply is the final destination of the goods (i.e., the recipient’s state).
- If the recipient is not registered under VAT, then the place of supply depends on whether the supplier exceeds the VAT export threshold:
- If the total amount of exports by the supplier is below the mandatory registration threshold in the destination member state, the place of supply is the UAE, and UAE VAT must be paid.
- If the total amount of exports by the supplier is above the mandatory registration threshold in the destination member state, the place of supply is the destination member state, and VAT should be paid in that state.
What is the place of supply for goods that involve installation or assembly?
The place of supply for goods that involve installation or assembly is the place where the installation or assembly takes place.
What is the place of supply for services that involve installation and assembly?
The place of supply for services that involve installation and assembly is the place where the installation is done.
What is the place of supply for services if the supplier resides in a GCC implementing state?
If a supplier residing in a GCC state supplies services to a VAT-registered recipient in another GCC state, the place of supply is the recipient’s state.
What is the place of supply for services if the supplier resides outside the GCC?
If a supplier residing in a non-GCC state supplies services to a recipient in the UAE, then the place of supply is the UAE.
What is the place of supply for water or energy distribution?
The place of supply for water or energy distribution is as follows:
If a taxable person who is a resident in the UAE makes a supply of water or energy to another taxable person who is a resident in another GCC member state, then the place of supply is the location of the recipient.
If a taxable person makes a supply of water or energy to a non-taxable person, the place of supply is the place of actual consumption.
What is the place of supply for restaurant, hotel and catering services?
The place of supply for restaurant, hotel and catering services is the place where the services are performed.
What is the place of supply for cultural, artistic, sporting, and educational services?
The place of supply for cultural, artistic, sporting and educational services is the place where the services are performed.
What is the place of supply for real estate services?
The place of supply for real estate services is the place where the real estate is located.
What is the place of supply for transportation services?
The place of supply for transportation services is the place where the transportation begins.
What is the place of supply for telecommunication and electronic services?
The place of supply for telecommunication and electronic services is the place where the services are used or received.
What is the date of supply?
The date of supply (or time of supply) for a transaction is the date when VAT is levied on the supply of goods and services involved in that transaction.
How is date of supply determined for goods?
The date of supply for goods is the earliest of the following dates:
- Transfer of goods, if they’re being transferred under the supervision of the supplier
- The date when the recipient takes possession of the goods, if they’re being transferred but not under the supervision of the supplier
- Completion of assembly or installation of the goods
- On arrival of the goods, if they are being imported from outside the UAE
- Receipt of payment
- The date when a tax invoice is issued
- The recipient’s acceptance of supply/date within 12 months after the goods were transferred or places at the client’s disposal (if the supply was on a returnable basis)
How is the date of supply determined for services?
The date of supply for services is the earliest of the following:
- Completion of the service
- Receipt of payment
- The date when a tax invoice is issued
What is the date of supply for goods/services under a contract involving periodic payments or invoices?
The date of supply in this case will be the earliest of the following dates:
- The date when a tax invoice is issued
- Receipt of the first payment
- The due date of payment as displayed on the invoice
It should be noted that the date of supply cannot exceed one year from the date when the goods/services were provided.
What is the date of supply for vouchers?
The date of supply for vouchers is either the issuance of the voucher or the date when the supply is carried out thereafter.
What is the date of supply for goods where the payment is made through vending machines?
The date of supply for such goods is when the funds are collected from the machine.
What is the date of supply for deemed supplies of goods/services?
The date of supply for deemed goods/services is whichever of the following applies: the date when the supply is made, the date when the usage of the goods/services is changed, or the date when the taxpayer applies for deregistration.
What is the value of supply? How is it calculated?
The value of supply is the amount collected by the supplier for the supply of goods or services. It’s inclusive of expenses and charges that the supplier passes on to the buyer (such as shipping and handling charges). Simply put, the value of supply is the amount paid by the buyer, excluding VAT.
It’s calculated as follows:
Value of supply = Consideration (payment) - VAT
How is the value of supply calculated if the total payment is monetary?
If the total consideration is monetary, the value of supply will be the market value without VAT. It will also include other expenses and charges incurred by the supplier.
How is the value of supply calculated if part of the consideration is non-monetary?
If all or part of the consideration is non-monetary, the value of supply will be calculated based on the monetary portion plus the fair market value of the non-monetary portion, excluding VAT.
What reduces the value of supply?
The following factors will reduce the value of supply:
- Discounts and deductions given to customers.
- Subsidies granted by other GCC member states to the supplier.
What should I do if the value of supply is expressed in foreign currency?
The value of supply should be converted to AED or the currency of the relevant state based upon the current exchange rate.
What is the profit margin scheme?
The profit margin scheme is a method of VAT calculation for certain goods. Under this scheme, you can calculate VAT based on the profit margin rather than the total value of the sale. This scheme was introduced to avoid double taxation on second-hand goods. The products eligible for the profit margin scheme are mostly second-hand goods, on which tax has already been paid. When a buyer or dealer purchases from an unregistered person, they don’t pay tax, so there is no input tax to recover. Therefore, while selling these second-hand goods, the dealer shouldn’t have to pay tax for the full sale price. This is where the profit margin scheme is beneficial, as it allows sellers to pay VAT only on the profits made on the supply.
For example, if a second-hand car dealer sells a pre-owned car to a customer, then the dealer calculates VAT based on the profit margin and not on the sale value.
Is the profit margin scheme applicable to all products and services?
VAT can be calculated under the profit margin scheme for the following goods: * Second-hand goods * Antiques (goods over 50 years old) * Collector’s items (coins, stamps, etc)
What are the eligibility conditions for the profit margin scheme?
The following conditions must be fulfilled for a supply to be eligible under this scheme:
- The goods must be purchased from a person who is not registered for VAT. But if you do purchase it from a VAT registered person, he or she should be selling it under this scheme.
- The supplies made under this scheme are not eligible for input tax claim
Do I need to notify the FTA regarding supplies under the profit margin scheme?
If you are a VAT-registered person making supplies under the profit margin scheme, you need not report it to the FTA. You will have to report the sales and the corresponding VAT applied on the sales while filing your VAT return.
As a registered dealer, do I need to pay taxes for purchasing second-hand items from an unregistered supplier?
No, you do not need to pay taxes in this case. However, if you purchase from a registered supplier, then the supplier will need to pay tax on this supply. This supplier cannot claim input tax credit if they have opted for the profit margin scheme.
Do I need to reissue tax invoices with the exchange rate published by the Central Bank of UAE?
No, you don’t need to reissue tax invoices that were created between January 1 and May 16, 2018, as long as the exchange rates used were from reliable sources (like Thomson Reuters, Oanda, or UAE banks) and the same source was used consistently for all the invoices.
What happens when the tax invoice is issued after May 17, 2018 but the date of supply was prior to that date?
If the date of supply is prior to May 17, 2018, the invoice must be converted using the relevant exchange rate for the date of supply. Historical exchange rates are published by the Central Bank of the UAE.
Where can I find the current exchange rates for different currencies?
You can find today’s currency exchange rates on the UAE Central Bank website. If you need to convert an invoice using an earlier date’s exchange rates, use the historical exchange rates on the UAE Central Bank website.
Can the exchange rates be rounded off to fewer decimal places?
The exchange rates must be used exactly as published. Rounding them off to fewer decimal places is strictly not permitted. For example, if the published exchange rate for Dirham to USD is 0.27228, then you must use exactly 0.27228 as the exchange rate for your invoices.
When are the exchange rates updated on the UAE Central Bank website?
The exchange rates are updated around 6 pm every day.
What happens if the invoice is issued before the exchange rates are updated for the day?
If the invoice is issued before the exchange rate is updated, then you can use the rate that was on the website when you raised the invoice (that is, the previous day’s rate).
How do exchange rates work for import of goods from other countries?
When you import goods into the country, the VAT applicable on them will be calculated based on your declarations to the customs department. This VAT declaration amount is auto-filled in box 6 of the VAT return form. The customs department converts invoices in foreign currency to UAE Dirham.
Does the customs department use the exchange rates published by the Central Bank?
The customs department doesn’t necessarily follow the exchange rates published by the Central Bank. In cases where exchange rates differ, you can use the exchange rates used by the customs department for declaring your imports.
How do exchange rates work for import of services from other countries?
The invoice generated for an import of services might be in a foreign currency. In this case, the tax liability for the service will be calculated by converting the currency using the exchange rates published by the Central Bank. The exchange rate used should be the one published on the date of supply of the service, and the date the invoice was issued should be used as the date of supply.