Exempt Supply Invoice

Exempt Supply Invoice

Exempt Supply means goods and services sold by the companies are free from VAT. No VAT will be charged on these goods & services. Exempt supplies are goods and services which are not subject to VAT and not included in VAT return.
For company and business, VAT paid on the assets, purchases or expenses for their businesses cannot be claimed as Input Tax Credits. Ultimately, the VAT paid will be absorbed by company or business as part of their business costs.
Businesses solely making exempt supplies cannot register for VAT and cannot claim any Input VAT. However, a business making a mix of taxable and exempt supplies can register for VAT and reclaim Input VAT directly related to taxable supplies.

If you supply supplies exempt from the VAT in the UAE you need to clearly show AED 0.00 is the VAT line, and remember, if you are not registered, you cannot charge VAT.

Items exempted from VAT in UAE

VAT exemptions are provided to :
certain financial services,
residential building, and
supply of bare land,
local passenger
To consider a supply as exempted from the VAT, the specific conditions mentioned in the UAE VAT Act and Executive Regulations need to be fulfilled.
The following is the list of exempted goods and services:
1. Financial Services: Financial services are those services which are connected to dealing in money or its equivalent and the provision of credit. Exchange of currency issue, provision of any loan, advance or credit, the operation of any current, deposit or savings account etc. are few instance of financial services.

The following financial services are under VAT exemption supplies:
• Financial services which are not conducted in return for an explicit fee, discount, commission, and rebate or any similar return are exempted.
• The issue, allotment, or transfer of ownership of an equity security or a debt security are exempted from VAT Rate.
• The provision or transfer of ownership of a life insurance contract or the provision of re-insurance in respect of any such contract is under VAT exempted list.
Not all of the financial services discussed above are exempted from VAT. If any of these services are conducted in return for an explicit fee, commission, discount, and rebate or similar return as consideration in respect of the supply of services, it would amount to a taxable supply.

2. Residential Buildings
The supply of residential buildings are VAT exempted subject to the following condition:
• The lease is more than 6 months or
• The tenant of the property is a holder of an ID card issued by the Emirates Identity Authority
The period of tenancy referred above will be identified with reference to the contractual period of tenancy and it will include any period arising from a right or option to extend the period of tenancy or renew the tenancy.
Here, residential buildings refer to buildings intended and designed for the human occupation which includes principal place of residence, residential accommodation for students or school pupils, armed forces and police, orphanages, nursing homes, and rest homes.
Broadly, all residential accommodations which are within the definition of residential building and satisfying the above conditions are exempted from VAT.
The following are the instances of buildings which are not considered as residential buildings:
• Any place that is not a building fixed to the ground and can be moved without being damaged
• Any building that is used as a hotel, motel, bed and breakfast establishment, or hospital or the like
• A serviced apartment in which services in addition to the supply of accommodation are provided
• Any building constructed or converted without lawful authority In all the above cases, VAT @ 5% will be applicable.
In all the above cases, VAT @ 5% will be applicable.

3. Bare Land
Here, ‘bare land’ means a land that is not covered by complete buildings or partially completed buildings or civil engineering works.

4. Local Passenger Transport Services
The supply of local passenger transport services by way of transport by land, water or air from a place in the State to another place in the State will be exempted. The means of transport such as motor vehicle including taxi, bus, railway train, tram, monorail, ferry boat, abra or other similar vessel or similar means of transport, designed or adapted for transport of passengers are exempted from VAT.
Even helicopter or aeroplane designed or adapted for transport of passengers and approved for transport of passengers in accordance to the Civil Aviation Act is exempted.
However, local passenger transport services in the context of pleasure trip and local passenger transport service by aircraft which constitutes “international carriage’ as mentioned in UAE executive regulation will not be exempted and VAT @ 5% will be levied.

How to raise Exempt Supply invoice through Reach Accounting Software

Registration for making Exempt Supply Invoice

As a supplier, you must register for VAT with the Federal Tax Authority (FTA) if your taxable turnover including zero-rated supplies exceeds Dh 375,000 in a 12-month period, or if you expect your taxable turnover to exceed Dh375,000 in the next 30 days.
However, you can ask for an exception from registration if you do not make any other supplies, which are taxable at the standard rate of 5 percent. If an exception from registration is granted, then you will not have to submit regular tax returns. However, you will also not be able to recover VAT-related input tax incurred.

Filing returns for making Exempt Supply Invoice
If you do not qualify for an exception from the VAT registration, then you must file tax returns with the FTA. You will also be entitled to recover input tax incurred on business purchases subject to the normal conditions.