Zero-rated supply: what it means in UAE tax.

What zero-rated supply means

Also called: Zero-rated VAT, 0% VAT.

A zero-rated supply is a taxable supply on which VAT is charged at 0%. The customer pays no VAT, yet the supply stays inside the VAT system. That is the key difference from an exempt supply: a business making zero-rated supplies can deduct the input tax on the costs of making them.

The VAT law lists the zero-rated categories. They include exports of goods and services to outside the GCC implementing states, international transport of passengers and goods, certain means of transport, investment precious metals, the first supply of new residential buildings within three years of completion, crude oil and natural gas, certain education services, and preventive and basic healthcare services.

For an exporter or other SME with mostly zero-rated sales, input tax often exceeds output tax, so the business can be in a refund position. That makes the evidence behind each zero-rated sale, such as export documents, the thing an audit will test first.

How it works

• Zero-rated supplies are taxable supplies, so they count towards the VAT registration threshold and are reported in the VAT return.
• Directly exported goods must leave the UAE (or enter customs suspension) within 90 days of the date of supply, with customs and commercial or official evidence kept.
• Services are zero-rated as exports only if the customer has no place of residence in a GCC implementing state, is outside the UAE when the service is performed, and the service is not tied to UAE property or goods.
• Moving goods from the mainland into a designated zone is not an export.
• If the export conditions are not met in time, VAT at the standard rate becomes due on the supply.

Worked example

A spice trader in Dubai exports most of its stock to customers in Africa and sells the rest locally in one quarter.

Local sales before VAT	AED 100,000
Output tax at 5% on local sales	AED 5,000
Export sales at 0%	AED 400,000
Output tax on exports	AED 0
Input tax on all purchases	AED 18,000
Excess recoverable tax for the quarter	AED 13,000

Because exports are zero-rated rather than exempt, the trader recovers all its input tax and ends the quarter in a refund position.

Common mistakes

• Zero-rating an export without the customs declaration and shipping evidence the regulation requires.
• Zero-rating services to an overseas client whose staff receive the service in the UAE.
• Treating zero-rated and exempt as the same thing, and so not claiming input tax.

The law

• Federal Decree-Law No. 8 of 2017 on Value Added Tax, Articles 44 and 45
• Cabinet Decision No. 52 of 2017 (Executive Regulation of the VAT law), Articles 30 and 31

Frequently asked questions

Do I have to register for VAT if all my sales are zero-rated?

Zero-rated sales count towards the registration threshold. The VAT law has a separate exception from registration for persons making only zero-rated supplies, subject to FTA approval, so check the conditions.

Is healthcare always zero-rated?

No. Only preventive and basic healthcare services and related goods, as defined in the Executive Regulation, are zero-rated. Elective cosmetic treatment, for example, is standard-rated.

Related terms

Exempt supply · Taxable supply · Place of supply · Input tax · Designated zone. See every term in the UAE tax glossary.

For the full picture, read our guide: UAE VAT Refunds for Businesses: When You Are Owed Tax and How to Claim It.

Need help with VAT returns? See our VAT returns service.