Zero-rated VAT goods and services

Zero-rated supplies in UAE VAT refers to the taxable supply on which VAT is charged at zero rate. Here, tax is charged at zero-rate either based on the nature of supply, regardless of the goods or services supplied or the specified goods or services which are listed under zero-rated list.

Generally, all exports of goods and services in UAE will be considered as zero-rated supplies. However, to qualify a supply as zero-rated, there are a set of conditions laid out in UAE executive regulations which needs to be met for charging zero rate tax

List of Zero-rated VAT goods and services in UAE

The following are the list of zero-rated VAT goods and services in UAE. However, as mentioned earlier, to consider the following supplies as zero-rated supplies, the conditions mentioned in UAE executive regulations needs to be meet.

  • Basic healthcare services
  • Basic education services
  • Goods and service outside GCC.
  • Gold, silver and platinum for investment purposes.
  • International transport of passengers outside U.A.E. (eg. Air travel).
  • Subsequent supplies of residential property (sales and leases) will be exempt from VAT. However, the first sale of new residential property within a time period of 3 years from construction will be subject to the zero-rated of VAT.

Supply of services

VATP019 provides an overview of the zero-rating conditions in Article 31 of the Regulations. A supply of services may only be zero-rated if (1) the recipient does not have a place of residence in an Implementing State and (2) is outside the UAE at the time the services are performed.


Place of residence

A recipient of services is regarded as having a place of residence in the UAE if the recipient has either a place of establishment (where it is legally established) or fixed establishment (any fixed place where business is regularly conducted with sufficient human and technology resources).

Where a recipient has establishments in multiple jurisdictions, the establishment most closely related to the supply of services must be determined. UAE suppliers are only entitled to apply the zero rate of VAT on services supplied, if the establishment of its recipient, that is most closely connected to the supply, is outside UAE.

The Public Clarification sets out criteria to consider in determining the establishment most closely related to the supply where there is uncertainty regarding whether a supply of services is received by a foreign or UAE establishments of a recipient. These include the following:

  • Which establishment is the contractual recipient of the supply;
  • Which establishment is actually benefiting from the supply;
  • Which establishment will receive the invoice and make payment for the supply;
  • Which establishment provides instructions to the supplier; and
  • Whether the services are related to business being carried on by the recipient through an establishment in a particular country.


Location of recipient

Following the recent change in the Regulations (Article 31(2)), it is now clear that the zero rating will not apply when the recipient of a supply is physically located in UAE for one month or more, and that presence is effectively connected to the supply being made.

The Public Clarification states that only the physical presence of the recipient during the period of supply and consumption needs to be taken into account; the location of the recipient before and after performance and consumption of the services should not be taken into account.

Importantly, VATP019 states that when determining the location of the recipient, only the establishment most closely related to the supply should be considered. This means that if a recipient has both UAE and non-UAE establishments, and the non-UAE establishment is most closely related to the supply, the condition that the recipient is outside the UAE may still be met, despite the recipient having a UAE establishment.

However, a non-UAE recipient of services (including one which already has a UAE establishment) may no longer be considered 'outside the UAE' if it creates even a temporary presence (i.e. one month or more) in the UAE at the time the services are performed, which relates to the supply being made.

In addition, VATP019 provides examples related to the amended Article 31(2) of the Regulations, whereby a person can be considered outside the UAE only where they have only a short-term presence in the UAE of less than a month and the presence is not effectively connected with the supply.

The FTA expressly states that where all conditions for the zero-rating of the export of services cannot be ascertained, the supplier must standard rate the supply.