What is the difference between zero-rated and exempt supplies?
Zero-rated supplies are taxed at 0% and allow businesses to reclaim input VAT, while exempt supplies have no VAT applied and input VAT cannot be recovered.
Understanding the difference between zero-rated and exempt supplies is crucial for UAE businesses.
Zero-Rated Supplies
- Taxed at 0% VAT rate
- Input VAT can be reclaimed
- Include exports, international transport, certain education and healthcare
- More favorable for businesses
- Appear on VAT returns
Exempt Supplies
- No VAT applied
- Input VAT cannot be recovered
- Include certain financial services, residential rentals, bare land
- Less favorable for businesses
- May require input VAT apportionment
Business Impact
- Zero-rated supplies: Lower costs, full VAT recovery
- Exempt supplies: Higher costs, no VAT recovery
- Mixed supplies require careful VAT treatment
- Affects pricing strategies and profitability
