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VAT Services — Dubai, UAE

VAT Zero-Rated & Exempt Supplies UAE

Not all UAE supplies are taxed at 5%. Some are zero-rated at 0% and some are fully exempt. Getting the classification wrong leads to errors in your VAT return and FTA penalties. Our consultants confirm the correct VAT treatment for your business. Free consultation.

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3 Types Standard (5%) · Zero-Rated (0%) · Exempt

Free Consultation — we confirm the correct VAT treatment for your business

FTA Compliant advice — avoid misclassification penalties

Overview

The Three UAE VAT Supply Types

Under UAE VAT law, every supply of goods or services falls into one of three categories. Correct classification is critical — misclassification leads to errors in your VAT return and potential FTA penalties.

Standard-Rated

The default UAE VAT rate. Applies to most goods and services supplied in the UAE. VAT is charged on sales and input VAT on related purchases is fully reclaimable.

Most Business Supplies

Zero-Rated

No VAT is charged on sales but input VAT on related purchases can still be fully reclaimed. This is the most favourable treatment for businesses making these supplies.

Exports, Healthcare, Education

Exempt

VAT Exempt

No VAT is charged on sales and input VAT on related purchases cannot be reclaimed. Exempt supplies reduce your overall input VAT recovery rate.

Finance, Residential Rent

Key Differences

Zero-Rated vs Exempt — Side by Side

This is where most businesses get confused. Both zero-rated and exempt supplies have a 0% VAT rate on sales — but they are treated very differently for input VAT recovery.

FeatureStandard (5%)Zero-Rated (0%)Exempt

VAT charged on sales5%0%None

Input VAT on purchases reclaimableYesYesNo

Must be included in VAT returnYesYesYes

Counts toward VAT registration thresholdYesYesNo

VAT invoice requiredYesYesNo

Can trigger VAT refundNoYesNo

Examples

What Are Zero-Rated and Exempt Supplies in the UAE?

The FTA specifies exactly which supplies qualify as zero-rated or exempt under UAE VAT law. Here are the most common categories.

Zero-Rated — 0% VAT, Input VAT Reclaimable

Zero-Rated Supplies

Export of goods to outside the UAE
Export of services to non-UAE recipients
International transport of passengers and goods
Certain preventive healthcare and medical services
Certain educational services and related goods
First supply of residential buildings (new build)
Crude oil and natural gas supplies
Certain investment-grade precious metals (gold, silver, platinum)
Supplies made within designated free zones to other businesses in the same zone

Exempt — No VAT, No Input VAT Recovery

Exempt Supplies

Supply of residential buildings after the first supply (re-sale and rental)
Bare land (undeveloped)
Local passenger transport (taxis, buses, metro)
Certain financial services (interest, loans, credit)
Life insurance and reinsurance
Certain investment fund management services

Mixed Businesses

What If My Business Makes Both Taxable and Exempt Supplies?

Partial Exemption — How It Works

If your business makes both taxable supplies (standard-rated or zero-rated) and exempt supplies, you cannot reclaim all of your input VAT. You must apply a partial exemption calculation to determine how much input VAT you are entitled to recover.

The FTA provides standard methods for this calculation, but businesses with complex supply mixes may use a special partial exemption method approved by the FTA. Getting this wrong leads to either over-claiming or under-claiming input VAT — both of which can result in FTA penalties or cash flow losses.

We advise on the correct partial exemption method for your business and ensure your VAT returns reflect the accurate recovery rate every quarter.

Identify your supply typesWe classify all your supplies as standard-rated, zero-rated, or exempt

Calculate your recovery rateWe calculate the proportion of input VAT you are entitled to recover based on your taxable vs exempt supplies

Apply to your VAT returnWe apply the correct recovery rate to your input VAT claims in each quarterly VAT return

Annual adjustmentAt year-end, we perform the FTA-required annual partial exemption adjustment to true up your recovery rate

Our Service

How We Help With Zero-Rated and Exempt Supplies

Correct VAT classification is the foundation of an accurate VAT return. We review your business activities, confirm the correct treatment, and ensure your filings reflect this accurately.

Business activity reviewWe analyse all your supplies — goods and services — and classify each one correctly under UAE VAT law

Confirmation of zero-rated vs exempt vs standard treatmentWritten confirmation of the correct VAT treatment for each supply type your business makes

Partial exemption calculationFor mixed businesses, we calculate your input VAT recovery rate and apply it correctly in every VAT return

VAT invoice guidanceWe advise on what your tax invoices must state for zero-rated supplies — including the FTA-required statement of why 0% applies

VAT return preparation with correct classificationWe handle your quarterly VAT filing, ensuring every supply is correctly classified and every input VAT claim is accurate

Ongoing FTA compliance adviceVAT law interpretations change. We keep you updated on any FTA clarifications or changes affecting your supply classification

FAQ

Frequently Asked Questions

What is the difference between zero-rated and exempt VAT in the UAE?+

Both have a 0% VAT rate on sales, but they are treated differently for input VAT. Zero-rated: no VAT on sales but you can still reclaim input VAT on related purchases — making it very favourable. Exempt: no VAT on sales and you cannot reclaim input VAT on related purchases. The distinction is critical for exporters, property businesses, and financial services companies.

Do exempt supplies count toward the VAT registration threshold?+

No. Exempt supplies are not included in the calculation of taxable turnover for VAT registration purposes. Only standard-rated and zero-rated supplies count toward the AED 375,000 mandatory registration threshold. This means a business that only makes exempt supplies does not need to register for VAT.

Can I reclaim VAT on purchases related to my export business?+

Yes. Exports are zero-rated (0% VAT on sales), which means you can still fully reclaim input VAT on purchases and costs related to your export activities. This often results in a VAT refund position — the FTA owes you the difference between your input VAT and your zero-rated output VAT. See our VAT refund service.

Is residential property rental zero-rated or exempt in the UAE?+

Residential property rental is exempt from VAT in the UAE. This means no VAT is charged on the rent, and the landlord cannot reclaim input VAT on expenses related to the residential property (such as maintenance or refurbishment costs). Commercial property rental, on the other hand, is standard-rated at 5%.

What does a zero-rated VAT invoice need to say?+

A tax invoice for a zero-rated supply must clearly show the 0% VAT rate and include a statement explaining why the zero rate applies — for example "This supply is zero-rated as an export of goods under UAE VAT Law." Failure to include the correct statement can result in the supply being treated as standard-rated during an FTA audit. We advise on correct invoice wording as part of our service.

What happens if I misclassify a supply on my VAT return?+

Misclassification can result in FTA penalties for incorrect VAT returns, over- or under-payment of VAT, and interest on any underpaid amounts. The FTA actively reviews supply classifications during audits. We ensure every supply in your VAT return is correctly classified, reducing your audit risk significantly. See our VAT filing service.

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Confirm Your VAT Treatment — Free Consultation

We review your business activities and confirm the correct VAT classification for every supply you make — preventing costly misclassification errors.