Exempt supplies

What does “exempt supplies” mean?

Exempt supplies are supplies that are subject to the exempt (0.00%) tax rate. These exempt supplies should be declared in VAT returns that are submitted every tax period. The supplier will not be able to recover VAT paid on the expenses used to make the exempt supplies. If you are a supplier of exempt supplies only, you are not required to register under VAT.

Add an exempt tax in Wafeq

You can add exempt tax to your supplies when you create your invoices in Wafeq. In the Price column, click on +Add Tax, and select Exempt (0.00%).

What goods and services are exempt supplies?

Financial services: These financial services should not be conducted for any sort of explicit fee, commission, or discount. Some of these services are connected with dealing with money or an equivalent, the exchange of currency, the provision of a loan, an advance or credit, or the operation of a deposit or savings account. Note that if any of the financial services are conducted in return for an explicit fee, commission, or discount, they would amount to taxable supplies.

The subsequent supply of residential properties: These residential buildings refer to properties that are intended for human occupation including a place of residence, residential accommodation for students, armed forces and police, orphanages, nursing homes, and rest homes. These supplies of residential properties should have a lease that is more than 6 months, or a tenant that is a holder of an ID card issued by the Emirates Identity Authority. Note that non-residential properties will be subject to a 5% VAT, these include hotels, motels, hospitals, etc.

The supply of bare land: These properties include land that is not covered with partial or completed buildings and civil engineer works.

The supply of local passenger transport: This supply includes the transport of passengers by land, sea, or air from one place to another within the state. i.e. motor vehicles including buses, taxis, railway trains, ferry boats, helicopters, and airplanes intended for passenger transport, or any other similar means of transport of passengers. Though, if these services are used for leisure and constitute “international carriage”, they will be charged 5% VAT.

How do I recover input tax on expenses incurred to make both exempt and taxable supplies?

If an expense relates to both taxable and non-taxable supplies, you will have to appoint each portion of the expenses to their relevant supplies. You will only be able to recover the input tax of the expenses incurred for the taxable supplies.