Understanding VAT exemptions in UAE might feel like a bit of a maze at first. But don’t worry, it’s not that difficult once you break it down. The UAE has a 5% VAT rate, but not everything is taxed. Some stuff gets a pass, either to make life easier or to keep certain services affordable.

Let’s talk about what’s VAT exempt in the UAE. These include areas like financial services, residential buildings, bare land, and local transport. There’s even a VAT refund for tourists, which is pretty cool.

We’ll walk through what’s on the UAE VAT exemption list, who qualifies, how to apply, recent updates and what to watch out for. So keep on reading!

Zero-Rated vs. VAT Exempt – What’s the Difference?

This part confuses a lot of people. So here’s a simple way to look at it:

• Zero-rated means you don’t charge VAT, but you can claim back the VAT you paid on stuff you bought.
  
• VAT exempt means you don’t charge VAT and you can’t claim anything back.

For example, zero rated supplies vs exempt supplies: selling exports is zero-rated, but renting out a long-term apartment is exempt.

That small difference makes a big impact on your business costs. VAT exempted goods in UAE cost more to handle because you can’t recover your input VAT.

UAE VAT Exempt Sectors

Financial Services

Lets start with the trickiest one. Some financial services are taxed, but others are not. If a bank charges a clear fee, like a commission, it’s taxed. But if they make money through things like interest or margin (basically, without showing a clear fee), that’s VAT exempt in the UAE.

Right now, the VAT treatment doesn’t change based on whether the service is going to a GCC country or somewhere else—because the GCC VAT framework isn’t fully in effect yet. So, all countries outside the UAE, including those in the GCC like Saudi Arabia, are treated the same as any other foreign country (like Italy).

That means if you’re exporting services outside the UAE (whether to GCC or non-GCC countries), they’re generally zero-rated—as long as you’ve got the right commercial documentation to prove it’s an export. For services, only commercial documents are typically needed.

On the other hand, if you’re importing services from outside the UAE, those are usually subject to VAT at the standard rate under the reverse charge mechanism.

Residential Buildings

Here’s the deal: the first sale or lease of a new residential building is zero-rated if it happens within three years of it being built. After that? It’s VAT exempt.

So, if you’re renting out an old apartment, there’s no VAT. But you also can’t claim back VAT on stuff like renovations. This part is key when you’re looking at the difference between exempt and zero-rated VAT in UAE.

Bare Land

Land that’s completely empty, with no buildings and no construction, is VAT exempt. Selling it or renting it out? Still exempt.

But if there’s any construction on it, even partly done, it’s not “bare” anymore. That means it’ll be taxed. This is where knowing what counts as UAE VAT exempt supplies is super useful.

Local Passenger Transport

Riding the metro, taking a taxi, or hopping on a bus? That’s VAT exempt in UAE.

But don’t mix this up with fun tours or entertainment rides—those are taxed. So, your daily commute is fine, but your desert safari? That’s gonna have VAT.

Tourists

Tourists can get a VAT refund when they shop in the UAE. They just need to spend at least AED 250 and ask for a tax-free receipt at the store.

Before leaving, they show proof at the airport. The refund gives back 85% of the VAT they paid, minus a small fee. Not bad, right? That makes shopping in the UAE even more tempting.

If you want to learn more details about getting a VAT refund as a tourist check out this article on “How to Claim VAT Refund in UAE for Tourists.”

Partial VAT Exemptions in UAE

Some businesses deal with both VAT taxable goods and VAT exempt items. That makes things a bit messy.

Usually, businesses use a default method to figure out how much VAT they can claim back. But that method doesn’t always fit. So the FTA lets them use other ways, like counting transactions, checking space used, or splitting things by type of service.

These methods help businesses stay fair and avoid over-claiming VAT. Just be careful—if you use the wrong method or delay applying, you could face a full-blown VAT audit.

So, if you’re running a bank, an insurance firm, or anything mixed like that, check if your method really works. Otherwise, you might get flagged.

Staying Compliant with VAT

Keep Your Records Clean

Even if you’re dealing with VAT exemptions in UAE, you still have to keep records. That includes invoices, receipts, and notes for things you bought or sold.

If you can’t claim VAT back, you should still record it. This helps in case there’s an audit or if the FTA comes knocking.

Be Ready for Audits

The FTA can check your books at any time—usually within 5 years. If they spot anything weird, like claiming too much input VAT, they can extend the audit window.

So yeah, don’t mess around with VAT exemption in UAE rules. Stay sharp.

What Happens If You Don’t Comply

If you don’t keep proper records or make mistakes, you can get fined. First offense? AED 10,000. Do it again? That jumps to AED 50,000.

So even if you’re working with VAT exempt free zones in UAE, you’ve got to stick to the rules. Update your systems, train your staff, and double-check everything.

What If You Can’t Follow Regular VAT Rules?

Sometimes, things don’t go as planned. Businesses may find it hard to follow certain VAT procedures because of how their operations work. That’s where VAT Administrative Exceptions come in.

The FTA (Federal Tax Authority) lets you apply for exceptions in special situations. This doesn’t mean you skip VAT—it just means you get permission to do things a bit differently.

You can request an exception for things like:

• Not including all details on tax invoices or credit notes
  
• Changing your tax period to half-yearly
  
• Requesting a different “stagger” (i.e., when your tax period ends)
  
• Using other proof for exports if you can’t get standard documents
  
• Asking for more time to export goods outside the UAE
  

These are allowed under UAE law, but you need to apply properly. And yeah, the FTA checks everything before they say yes.

Who Can Ask for an Exception?

You can apply if you’re already registered for VAT in the UAE and have a solid reason for needing a different setup. Maybe you’re a freelancer, a small business, or a property owner. Maybe your exports are delayed, or your systems can’t easily generate full invoices.

The FTA understands that real life is messy, so they give you a chance to explain your case.

How to Apply for a VAT Administrative Exception

It’s all done online through EmaraTax. You’ll need to:

• Fill out the form
  
• Pick the category (like invoice exception or export timing)
  
• Explain your situation clearly
  
• Attach proof (like contracts, sample invoices, and payment slips)
  

Just keep it real—tell them what the issue is and why the regular rule doesn’t work for you.

Who can submit the form?

• You (the registrant)
  
• Your tax agent
  
• A legal rep
  

Tax advisors who aren’t officially registered with the FTA can’t submit it for you. That’s why it is better to choose FTA-approved agents like Bestax to be your tax agents so you can simply sit back and relax.  

What Happens After You Apply?

The FTA takes up to:

• 40 business days for most requests (like invoice or tax period changes)
  
• 20 business days for export extension requests
  

They’ll let you know if they need more info. Once they make a decision, you’ll get a notification and a PDF response on EmaraTax.

Why This Matters

If your business works a little differently, this can be a lifesaver. It lets you stay compliant without breaking your systems or processes. Just make sure your request is genuine and well-documented.

This option supports those who deal with VAT exempt items in UAE, businesses in refund positions, and SMEs trying to stay afloat. It’s all part of the UAE making VAT manageable, even if your setup isn’t exactly “standard.”

New VAT Exemptions Updates in UAE

Investment Fund Management Services

From November 15, 2024, the UAE made a significant change: investment fund management services are now VAT exempt. This means fund managers don’t have to charge the 5% VAT on their services. To qualify, the funds must be licensed by a recognized UAE authority, like the Dubai International Financial Centre (DIFC) or Abu Dhabi Global Market (ADGM). This move aims to boost the financial sector by reducing costs for fund managers and investors alike. ​

Cryptocurrency Transactions

In a groundbreaking move, the UAE has exempted cryptocurrency transactions from VAT. This exemption is retroactive, applying to transactions dating back to January 1, 2018. It covers activities like transferring and converting virtual assets, including cryptocurrencies. 

By removing the 5% VAT on these transactions, the UAE aims to position itself as a global hub for blockchain and digital assets, fostering innovation and attracting investment in the crypto sector. ​

Need Help with VAT Exemptions in UAE? Let Bestax Handle It

Let’s be real, VAT in the UAE can get confusing. Between figuring out what’s VAT exempt, what’s zero-rated, how to file returns, and what counts as VAT exempt items in UAE, it’s easy to feel overwhelmed.

That’s where we come in.

Bestax makes the whole process easier. Whether you’re just getting started or already running a business, we’ve got your back with:

• VAT Registration Services – We help you get registered without the headaches.
  
• VAT Return Filing – Accurate, on-time, and fully compliant so you avoid penalties.
  
• VAT Consultancy – From planning to audits to navigating tricky exemptions, our experts are here for you.
  

Why struggle through confusing tax rules or risk making costly mistakes? With Bestax, you’ll get straightforward support, reliable advice, and real people who know UAE VAT inside and out.

Let’s talk. Reach out to Bestax and we’ll guide you every step of the way.

Frequently Asked Questions About VAT Exemptions in UAE

How to get a VAT exemption certificate in the UAE?

To obtain a VAT exemption certificate, eligible entities such as diplomatic missions must apply through the Ministry of Foreign Affairs’ online portal, providing the necessary documentation for approval. ​

How to apply for VAT exemptions in UAE?

Businesses seeking VAT exemption should submit an application via the Federal Tax Authority’s EmaraTax platform, ensuring all required information and supporting documents are provided.

What are VAT-exempt supplies in the UAE?

VAT-exempt supplies include certain financial services, residential buildings (other than the first supply), bare land, and local passenger transport services. ​

What companies are exempted from VAT in the UAE?

Companies exclusively making VAT-exempt supplies, such as those involved in specific financial services or dealing solely in residential properties post-first supply, may be exempt from VAT registration. ​

What is VAT exempt in the UAE?

Goods and services exempt from VAT include certain financial services, subsequent supplies of residential properties, bare land, and local passenger transport.

Are free zones in the UAE VAT-exempt?

Not all free zones are VAT-exempt. However, certain Designated Zones within free zones may have special VAT treatments, particularly for goods; services within these zones are generally subject to VAT. ​

What type of supply is taxed at 0% under UAE VAT?

Zero-rated supplies taxed at 0% include exports of goods and services outside the GCC, international transportation, certain educational and healthcare services, and specified investment-grade precious metals.

What is the difference between VAT-exempt and zero-rated supplies?

Zero-rated supplies are taxable at 0%, allowing businesses to reclaim input VAT, whereas VAT-exempt supplies are not taxed, and businesses cannot reclaim input VAT related to these supplies.

Disclaimer: The information provided in this blog is for general informational purposes only. For professional assistance and advice, please contact experts.