top of page

Executive regulations have clarified things, but grey areas remain

UAE will implement five per cent value-added tax (VAT) from 7am on January 1, 2018


The Executive Regulations have not notified the list of healthcare services that fall within the definition of basic and healthcare services, which will be zero-rated. Similarly, the Cabinet notification for the list of pharmaceutical products or medical equipment, which will qualify to be zero-rated, have not been released yet. Therefore, the healthcare industry is still waiting for these clarifications.

Local passenger transport

The Executive Regulations have not explicitly clarified as to whether school transport services (provided by third-party transport companies or qualified educational institutions themselves), corporate transport services (provided by third-party transport companies for pick-up and drop-off of staff of companies from the home to work place and back), chartering services for transport, transport services provided by companies like Uber who are aggregator of transport services, etc, will or will not fall within the definition of local passenger transport and whether they will be exempt from VAT or subject to the standard rate of five per cent.

Designated zones

With regards to supply of goods, only if the goods are supplied by a company or person in a designated zone to a company or person in a non-designated zone or in mainland UAE or vice-versa from a company or person in non-designated zone or in mainland UAE to a company or person in designated zone, then such supplies will be subject to VAT. However, the Executive Regulations have not clarified the procedural aspects of how the VAT has to be accounted for in case of supply of goods by a company or person in a designated zone to a company or person in a non-designated zone or in mainland UAE, and the clarification on these procedural aspects is still awaited.


In the telecom sector, there are no grey areas as such, except the definition of "public broadcast" as the definitions of these services in the Executive Regulations are very broad-based like broadband or 4G. Retail

There are few grey areas or transactions that require further clarity in the retail industry related to selling exempted items from the retail store, exchange or return of goods.

For example, if a consumer purchases an item for Dh100 on December 30, 2017, and exchanges with goods worth Dh120 by paying differential amount on January 2, 2018, will he or she be charged VAT on the full Dh120? Similarly, if goods are booked prior to December 31 but delivery is after January 1, will VAT be paid on the invoice amount and a separate invoice for the VAT amount be issued? Also, how will VAT apply if a supermarket is also selling generic drugs, which are exempted; can they also sell them as VAT-exempt as they will not typically have the licence of selling drugs of generic nature?

Real estate

On real estate, the grey area is that whether labour accommodations will be considered as residential use (based on ultimate use) and exempted, or this will be treated as a commercial transaction. Furthermore on lease rent, on which such labour accommodations are built, will this still be commercial and likely to be subject to VAT or should this be lease of bare land and thus exempt? In addition, the apportionment of input tax credit for real estate players who are renting out mixed use properties - since they will avail services for building as a whole and at that time it's not possible to allocate whether this input tax is for exempt services or taxable - therefore, it should be allowed to allocate this on output basis (in proportion of rental earned for residential and commercial spaces or in proportion of area under each usage). This choice should be given to them on an automatic basis; today, they need to apply to the FTA to adopt these methods and justify. Until such time approval from the FTA is received there will be considerable loss of input credits on this account.

Another point is that whether a landlord of a residential building who gives the entire building on lease to large players to further manage and they in turn lease for residential purposes: whether the first transaction is commercial and hence subject to VAT or both will be regarded as residential and thus zero rated or exempted. Gold and jewellery

There is a practice of trading in gold on an unfixed basis (where the gold rate is not fixed at the time of trade but is fixed in future); under the coming VAT regime, it's not possible to conduct trade like that.

Gold and jewellery players used to trade in gold (which is not bullion) on a barter basis' such practices may not continue. Gold and diamond groups had requested that in case of jewellery made on order - where bullion is accepted as consideration for gold in jewellery - they should be allowed to only show making charges as revenue. But no such directions are still contained in the Executive Regulations.

Moreover, prices of gold fluctuate every day and hence the display of prices on products that are inclusive of tax will be difficult for this sector. They are currently linked to fixed prices that are fixed each day. But to tag that on each product will be a challenge.

Also, other than buying precious ornaments, this sector gets many customers who want to exchange their ornaments for a new design or have some work done on it or just an exchange of other jewellery. The question here arises is whether the exchange of jewellery has to be treated as a single transaction or are two separate purchases and sale transactions.

10 views0 comments

Recent Posts

See All
bottom of page