The VAT is leviable on the supply of goods or services. What constitutes a supply of goods or supply of services has been defined in the Decree-Law No.8 of 2017 and further procedures have been laid down through Executive Regulations. The term supply of service is vast enough to cover all such transactions which do not constitute a supply of goods. Further, some activities are treated as a deemed supply of transactions to bring within the scope of levy of tax.
There are various types of Supplies under Federal Decree Law No. (8) 2017 :
- Standard Rated Supplies
- Zero Rated Supplies
- Exempt Supplies
As per Federal Decree Law No. (8) Of 2017 on VAT, Some supplies are Zero rated and some are declared as Exempt Supplies, Other than these, all the supplies are rated standard (i.e. 5%).
Let’s understand them one by one.
Exempt Supplies are not taxable supplies for VAT purposes. The VAT is not charged on exempt supplies and the supplier cannot recover any VAT on expenses incurred in making those exempt supplies.
Following supplies are exempt from VAT:-
- Local Passenger Transport
- Residential buildings are other than the residential buildings which are specifically zero-rated.
- Bare Land
- Financial Services including Life Insurance and reinsurance of life insurance as well as financial services that are not conducted for an explicit fee, discount, commission, rebate or similar type of transaction.
If all your supplies are exempt then there is no need for VAT Registration.
Zero Rated Supplies are the supplies which are taxable but the rate of VAT is 0%. You would need to record any zero-rated supplies in your VAT account and report them on your tax return.
The followings are the Zero-rated Supplies:-
- Exports of Goods and Services
- International transport of goods and passengers
- Certain means of transport, such as trains, trams, vessels, airplanes.
- First sale/rent of residential buildings.
- Aircraft or vessels designed for rescue and assistance by air or sea
- Certain investment precious metals.
- Certain Healthcare services and related goods and Services.
- Certain educational services and related goods and services.
Zero-rated supplies are also includible for calculating the threshold for registration but if all the supplies are Zero rated, only then can you apply for Certificate of Exception.
Standard Rated Supplies are those supplies on which VAT is levied at the rate of 5%. All the supplies other than mentioned above are standard-rated supplies. Every supplier needs to register for VAT if the standard-rated supplies exceed minimum threshold additionally these should be correctly reported in VAT Returns of the particular month.
Tax Consultants will understand your business and help you categorize your supplies and assess the VAT implications for the same.
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