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UAE introduces zero taxes, lowest rates in world

Staff Writer |
The President, Sheikh Khalifa bin Zayed Al Nahyan, issued the Federal Decree-Law for Value-Added Tax in the UAE, with one of the lowest rates in the world.

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A preliminary step to implementing VAT in the UAE as of January 2018, the 5 percent tax is set to be imposed on the import and supply of goods and services at each stage of production and distribution, including what is deemed to be a supply.

However, there are certain conditions when zero VAT will be applied.

Zero-rating applies when goods and services are being exported to outside a VAT-implementing GCC state, as well as to international transportation of passengers or goods including a transfer starting or ending in the UAE or passing through its territory.

Air transfer of passengers in in the UAE also incurs zero rates if it is considered an "international carriage" as per article (1) of the Warsaw International Convention for the Unification of Certain Rules Relating to International Carriage by Air 1929.

The supply or import of investment-precious metals, as well as the first supply of residential buildings within (3) years of its completion, either through sale or lease in whole or in part, is equally subject to a zero-rate. The first supply of buildings specifically designed to be used by charities and buildings converted from non-residential to residential shall also be taxable at the rate of zero.

The Decree-Law outlines that certain supplies shall be exempt from tax, namely: the supply of certain financial services as specified in the Executive Regulation, 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.

Zero rates and exemptions

The supply and import of goods and services specified in VAT decree-law made by a taxable person shall be a taxable supply subject to the zero rate. The zero rate shall apply to the following goods and services:

1. A direct or indirect export to outside the implementing states as specified in the executive regulation of this decree-law.

2. International transport of passengers and goods which starts or ends in the state or passes through its territory, including also services related to such transport.

3. Air passenger transport in the state if it is considered an "international carriage" pursuant to Article (1) of the Warsaw Convention for the Unification of Certain Rules Relating to International Carriage by Air 1929.

4. Supply of air, sea and land means of transport for the transportation of passengers and goods as specified in the executive regulations of this decree-law.

5. Supply of goods and services related to the supply of the means of transport mentioned in Clause (4) of this article and which are designed for the operation, repair, maintenance or conversion of these means of transport.

6. Supply of aircrafts or vessels designated for rescue and assistance by air or sea.

7. Supply of goods and services related to the transfer of goods or passengers aboard land, air or sea means of transport pursuant to Clauses (2) and (3) of this article, designated for consumption on board; or anything consumed by any means of transport, any installations or addition thereto or any other use during transportation.

8. The supply or import of investment precious metals. The executive regulation of this decree-law shall specify the precious metals and the standards based on which they are classified as being for investment purposes.

9. The first supply of residential buildings within (3) years of its completion, either through sale or lease in whole or in part, according to the controls specified in the executive regulation of this decree-law.

10. The first supply of buildings specifically designed to be used by charities through sale or lease according to the controls specified in the executive regulation of this decree-law.

11. The first supply of buildings converted from non-residential to residential through sale or lease according to the conditions specified in the executive regulation of this decree-law.

12. The supply of crude oil and natural gas.

13. The supply of educational services and related goods and services for nurseries, preschool, elementary education, and higher educational institutions owned or funded by federal or local government, as specified in the executive regulation of this decree-law.

14. The supply of preventive and basic healthcare services and related goods and services according to what is specified in the executive regulation of this decree-law.

The following supplies shall be exempt from tax

1. Financial services that are specified in the executive regulation of this decree-law.

2. Supply of residential buildings through sale or lease, other than that which is zero-rated according to clauses (9) and (11) of article (45) of this decree-law.

3. Supply of bare land.

4. Supply of local passenger transport.


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