Introduction to UAE VAT Classifications

There are four UAE VAT classifications for supplies: Standard, Zero Rated, Exempt, and Out Of Scope Supplies.

The Value Added Tax became a reality in the UAE on the 1st January 2018 as introduced by Federal Decree-Law No. (8) of 2017 on Value Added Tax. This law was enacted to establish the legal framework for the implementation of VAT in the UAE starting from January 1, 2018.

The Federal Tax Authority (FTA) regulates Value Added Tax (VAT) in the United Arab Emirates (UAE). The FTA is responsible for overseeing the implementation and administration of VAT, including registration, collection, enforcement, and providing guidance to businesses and individuals regarding VAT compliance.

Standard Rate

Standard-rated supplies attract a 5% tax upon supply, as outlined in UAE VAT regulations. When both the source and recipient are situated within the UAE, the standard rate is applicable to all goods traded on the mainland, except for those classified as zero-rated or exempt supplies. The mainland, in this context, refers to any area of the country not designated as a VAT zone.

These are goods or services subject to the standard VAT rate, currently 5% in the UAE. Examples include:

  • Electronic appliances sold within the UAE.
  • Clothing purchased from a store in the mainland of the UAE.

Zero Rated

Supplies subject to a zero percent VAT rate are referred to as zero-rated supplies in the UAE. Tax is levied at a zero rate based on the nature of the supply, irrespective of the goods or services provided, or whether they are listed as zero-rated.

These are goods or services subject to a 0% VAT rate. Examples include:

  • Basic food items such as bread, rice, and vegetables.
  • Exports of goods outside of the UAE.

Exempt Supplies

Exempt Supplies encompass goods and services not liable to value-added tax, with no option to claim input tax unless they meet the criteria stipulated in Federal Decree-Law No. (8) of 2017. Products supplied within the UAE that are not subject to any VAT, be it 0% or 5%, fall under the category of exempt supplies.

These are goods or services not subject to VAT at all, and no input tax can be claimed on them. Examples include:

  • Residential properties (sale or lease) in the UAE.
  • Financial services like bank accounts and loans.

Out of Scope – as the Fourth UAE VAT Classification

Out-of-scope supplies are not subject to VAT in the United Arab Emirates. They do not need to be included in regular VAT returns, unlike standard-rated, zero-rated, and exempt supplies. Businesses exclusively supplying outside their jurisdictions are also exempt from UAE VAT registration. However, companies may voluntarily register for VAT in the UAE if their taxable supplies exceed the AED 187,500 threshold.

These are supplies that fall completely outside the scope of VAT in the UAE and are not subject to VAT. Examples include:

  • Goods or services provided by a business located entirely outside the UAE.
  • Certain international transactions not involving goods or services entering the UAE.

Conclusion on UAE VAT Classifications

In conclusion, the introduction of Value Added Tax (VAT) in the United Arab Emirates (UAE) represents a significant milestone in the country’s fiscal policy landscape. Implemented in January 2018 under Federal Decree-Law No. (8) of 2017, VAT has brought about fundamental changes in how businesses operate and how government revenue is generated.

Throughout its implementation, the Federal Tax Authority (FTA) has played a pivotal role in regulating VAT and ensuring compliance among businesses and individuals. While VAT has presented challenges, particularly during its initial stages of implementation, it has also provided opportunities for enhanced fiscal sustainability and diversified revenue streams for the UAE government.

As businesses and individuals continue to adapt to the VAT regime, ongoing education, guidance, and support from the FTA remain essential. Furthermore, the effective enforcement of VAT regulations is crucial for maintaining the integrity of the tax system and ensuring a level playing field for all stakeholders.

Overall, VAT in the UAE represents a commitment to modernizing the country’s economy, enhancing fiscal resilience, and aligning with international best practices in taxation. With continued vigilance and collaboration between the government and the private sector, VAT will continue to contribute to the UAE’s economic growth and development in the years to come.


We hope this publication will help you understand the UAE VAT Classifications and how this may impact your accounting and tax and remain available for any questions regarding this post of general application.

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*The information on this page is not intended to be legal advice. This article is intended to provide an initial introduction to the UAE VAT Classifications.