Zero-Rated Supply

What is a Zero-Rated Supply?

A Zero-Rated Supply is a taxable supply subject to a 0% VAT rate. Although no VAT is charged to customers, the supplier can still recover input tax paid on related business expenses. This differs from exempt supplies, where input tax recovery is not allowed.

Zero-Rated vs Exempt Supplies

Zero-Rated

Taxable supply at 0% rate

Input Tax: Recoverable

N/A

Exempt

Outside scope of VAT

Input Tax: Not recoverable

Categories of Zero-Rated Supplies

1. Exports of Goods

Goods exported from the UAE to outside the GCC

Conditions: Goods must leave UAE, proper customs documentation required

2. International Transport

Passenger and goods transportation to/from UAE

Includes: Air, sea, and land transport services for international journeys

3. Supplies to Designated Zones

Goods and services supplied to designated free zones

Examples: JAFZA, Dubai Airport Free Zone (with proper documentation)

4. First Supply of Residential Buildings

First supply of new residential buildings within 3 years

Note: Subsequent sales are exempt, not zero-rated

5. Healthcare & Education

Certain healthcare and education services meeting specific criteria

Requirements: Must be provided by licensed facilities meeting FTA requirements

6. Precious Metals Investment

Investment-grade gold, silver, and platinum (99% purity or higher)

Condition: Must meet purity standards; jewelry is standard-rated

Documentation Requirements

To support zero-rating, businesses must maintain:

• Export customs declarations
• Shipping documents and bills of lading
• Evidence of goods leaving UAE
• Customer details and destination
• Commercial invoices
• Proof of delivery to designated zones

Benefits of Zero-Rating

Competitive Pricing: No VAT burden on exports and international services
Input Tax Recovery: Recover all VAT paid on business expenses
Cash Flow Advantage: Regular VAT refunds if zero-rated sales exceed standard-rated

Common Mistakes

Zero-rating domestic sales (should be 5%)
Treating exempt supplies as zero-rated
Insufficient documentation for exports
Zero-rating subsequent residential property sales (should be exempt)
Not meeting healthcare/education licensing requirements

Reporting on VAT Return

Zero-rated supplies are reported in Box 3 of VAT Return Form 201. While no VAT is charged, they're still taxable supplies that count toward registration thresholds and allow input tax recovery.

Related Terms

Exempt Supply

VAT exempt supplies

Input Tax

Recoverable VAT

Designated Zone

Free zones for VAT

VAT Return

Form 201 filing