The UAE’s VAT system offers significant benefits for businesses operating in Dubai, with exemptions and preferential rates tailored to specific industries and activities. Here's a detailed overview:
1. VAT-exempt businesses in Dubai
Businesses with limited turnover
- Companies with an annual turnover below AED 375,000 are exempt from VAT registration.
- Companies with a turnover between AED 187,500 and AED 375,000 can opt for voluntary registration.
- Non-resident businesses conducting taxable sales in the UAE must register for VAT regardless of their turnover.
Exempt sectors
- Healthcare: Essential medical goods and services.
- Real Estate: Specific residential property transactions.
- Transportation: Domestic passenger transport services.
- Oil and gas: Supply of natural resources.
2. Businesses applying a 0% VAT rate
A 0% VAT rate applies in specific cases:
- Exports outside the GCC (Gulf Cooperation Council): Goods and services supplied to non-VAT implementing countries.
- International transport: Cross-border freight and passenger services.
- Oil and Gas: For the first delivery of natural resources.
- Residential real estate: For the first sale of residential properties.
- Specific sectors: Education and certain healthcare services.
3. Special regime for exported services
Services exported to individuals or entities considered "outside the UAE" (those staying in the UAE for less than a month and not directly tied to the service delivery) can benefit from VAT exemption on exports.
4. Other notable exemptions
- Specific financial services.
- Transactions involving bare land.
- Subsequent supplies of residential real estate.
5. VAT and designated Freezones in Dubai
Dubai's VAT framework includes unique rules for designated free zones, offering tax advantages for specific transactions.
Key Designated Free Zones in Dubai:
- Jebel Ali Free Zone (JAFZA).
- Dubai Cars and Automotive Zone.
- Dubai Textile City.
- Dubai Aviation City.
- Al Quoz and Al Qusais Free Zones.
- Dubai Airport Free Zone (DAFZA).
VAT Rules for Transactions in Designated Free Zones:
- Goods delivered from a Mainland company to a designated zone: Subject to 5% VAT, classified as domestic sales.
- Goods delivered from a designated zone to a Mainland company: Subject to 5% VAT via reverse charge mechanism.
- Transfers between two companies within designated zones: Not subject to VAT.
- Exports from designated zones to GCC or international markets: Apply a 0% VAT rate.
Note: These rules apply exclusively to goods. Services do not benefit from the same VAT treatment in designated zones.
Conclusion: an attractive VAT system for businesses
Dubai’s VAT regime provides competitive advantages:
- Tax exemptions for strategic sectors and small businesses.
- Preferential rates for exports and certain international transactions.
- Special regimes in designated free zones, fostering seamless trade.
Understanding these rules is crucial for compliance and maximizing opportunities. Contact our tax experts today to optimize your VAT strategy and streamline your operations in Dubai.
