Understanding Goods and Services under VAT in the UAE

Understanding Goods and Services under VAT in the UAE

The Value Added Tax (VAT) system in the UAE applies to most goods and services, but not all of them are taxed the same way. To stay compliant and file your VAT return correctly, it’s important to understand the difference between exempted and taxable supplies.

1. Exempted Supplies

Exempted supplies are not subject to VAT, meaning you do not charge VAT on them, and you cannot claim input VAT on related expenses.

Some of the most common exempt supplies include:

• Bare land
• Residential property leases (after the first sale)
• Local passenger transport (such as taxis and buses)
• Certain financial services, like life insurance or margin-based transactions

Even though VAT is not charged, these supplies must still be reported in your VAT return to the Federal Tax Authority (FTA).

2. Taxable Supplies

Taxable supplies are goods and services that are subject to VAT, either at the standard rate or the zero rate.

a. Standard-Rated Supplies (5%)

These are the most common transactions in daily business operations. VAT at 5% applies to:

• Commercial property sales and leases
• Retail purchases (such as clothing, electronics, or groceries)
• Hotel and restaurant services
• Car sales and rentals
• Repairs and maintenance services

Businesses engaged in these activities must register for VAT if their taxable turnover exceeds AED 375,000 in a 12-month period.

b. Zero-Rated Supplies (0%)

Zero-rated supplies are still considered taxable, but the VAT rate applied is 0%. This allows the supplier to claim back input VAT on related expenses.

Examples include:

• Healthcare services, including medicines and medical equipment
• Education services and related materials
• International transport of passengers and goods
• Exports of goods and services outside the GCC
• Investment-grade gold, silver, and platinum
• Crude oil and natural gas
• First sale or construction of a residential property

Gigsters Tip

Whether your business sells standard-rated or zero-rated goods, or deals with exempt services, keeping clear records is essential. Gigsters.app makes it easy to issue VAT-compliant invoices, apply the correct rate, and automatically track which of your services fall under each category — helping you stay compliant and confident at tax time.