Zero-Rated Sales
Supplies taxed at 0% and how they differ from exempt supplies.
Zero-Rated Sales (0%)
In the UAE VAT system, "Zero-Rated" means that the supply is technically taxable, but the rate of tax is 0%. This distinction is vital for businesses because, unlike "Exempt" supplies, businesses making zero-rated sales are entitled to recover Input VAT paid on their related business expenses (such as rent, utilities, and equipment).
1. Exports of Goods and Services
The UAE promotes international trade by zero-rating exports to countries outside the "Implementing States" (currently, this applies to all countries outside the UAE).
- Goods: Direct or indirect exports of goods to a destination outside the State are zero-rated, provided the supplier retains official commercial and customs evidence of the export.
- Services: Services are zero-rated if the recipient has no place of residence in the UAE and is outside the State at the time the services are performed.
2. International Transportation
Transportation that crosses the UAE border is treated as zero-rated to keep the UAE competitive as a global logistics hub.
- Scope: This includes the international transportation of passengers and goods starting or ending in the State, or passing through it.
- Related Supplies: Services associated with international transport—such as loading, unloading, and specialized packaging—are also zero-rated.
3. Specialized Means of Transport
To support the aviation and maritime sectors, the supply of certain vehicles is zero-rated:
- Aircraft and Ships: Supplies of sea, air, and land means of transport are zero-rated if they are designed to be used for the international transportation of passengers or goods for a fee.
- Maintenance: Repair and maintenance services for these specific means of transport, as well as the supply of spare parts, also qualify for the 0% rate.
4. Investment-Grade Precious Metals
The UAE is a major hub for the gold and precious metals trade.
- Purity Standards: The first supply or import of investment-grade gold, silver, and platinum is zero-rated, provided the purity is 99% or higher and the metal is in a form tradable in global bullion markets.
5. Residential Properties (First Supply)
To encourage real estate development, the government provides a tax incentive for new constructions.
- Three-Year Rule: The first supply (sale or lease) of a newly constructed residential building is zero-rated, provided it takes place within three years of its completion date. Subsequent sales or leases of the same building are generally exempt.
6. Education and Healthcare Services
Essential social sectors are zero-rated to ensure affordability for the public.
- Education: The supply of educational services, as well as related goods and services, is zero-rated if provided by "Qualifying Educational Institutions" (such as nurseries, schools, and higher education institutions owned or funded by the government).
- Healthcare: Specific healthcare services that are "preventive or basic" are zero-rated. This also extends to medicines and medical equipment that are listed in a Cabinet Decision.
7. Crude Oil and Natural Gas
The supply of crude oil and natural gas is zero-rated. This ensures that the tax does not become a hidden cost in the production and distribution of energy within the industrial supply chain.
Registration Exception: A person whose supplies are only subject to the zero rate may apply for an exception from mandatory tax registration.
Important Compliance Note: While the tax rate is 0%, businesses must still report these sales in their VAT returns and maintain strict documentation (such as customs exit papers or medical/educational certifications) to prove the zero-rated status to the FTA.