The applicability and reporting of VAT on supplies varies depending on the type of supply being made by the taxable person to its customer. There are many factors like location of supplier, place of supply, location of the recipient, and VAT registration status of the buyer and seller etc. which plays a key role in determining the applicability and appropriate treatment of VAT.
Mainly, there are two types of supplies one being the Taxable supplies and the other being the exempt supplies.
Taxable supplies have further been divided into Standard rated supplies and zero rated supplies.
Standard Rated Supplies
Standard rated supplies are those supplies on which VAT will be levied at the rate of 5%. Any taxable person registered for VAT in the UAE can claim input tax deductions on transactions involving goods purchased or services rendered. Following are some of the supplies that fall under the category of standard rated supplies in the UAE:
• Sale or lease of commercial property
• Car sales and rentals
• Repair and maintenance services
• Retail purchases
• Hotels and Restaurants
Zero Rated Supplies
These are supplies on which VAT will be levied at the rate of 0% by the seller to the buyer of goods or services. However, any taxable person in the UAE can claim input tax deduction against these types of supplies. Following are the supplies on which VAT is charged at the rate of 0% by the supplier:
• Healthcare services
• Direct and indirect supply of goods or services outside the GCC implementing countries
• Education services
• International transportation
• Buildings specifically built to be used by charities
• Investment in specific precious metals
• First sale of residential property
These are supplies that are exempt from VAT and therefore no VAT is charged on transactions involving such supplies. Supplies exempt from VAT in the UAE are as follows:
• Bare Land
• Lease of residential property
• Specific financial services
• Second sale of residential property
• Local transportation services
In addition to the above mentioned supplies there are also some other classification of supplies in context of VAT in the UAE and these are as follows:
Reverse Charge Supplies
Reverse charge supplies are the supplies on which VAT is charged by the buyer to itself and then the output VAT is adjusted against the input VAT in the same VAT return of the buyer of goods / services. VAT on such supplies is charged at the rate of 5% in the UAE.
Supplies between GCC Implementing States (Business to Business & Business to Consumer)
If goods or services are provided by a registered taxable person in the UAE to a taxable person in a GCC implementing state then in that case no VAT will be charged by the supplier. If a registered person in the UAE makes supplies to a person not registered for VAT in the implementing state then the place of supply for that transaction would be the UAE and therefore tax will be levied on that transaction in accordance with the VAT law applicable in the UAE.