Zero rated supplies are those supplies on which you can claim input but Vat is charged at zero rate.
To understand better we should first understand the definition of Taxable Supply.
“A supply of goods & services for a consideration by a person conducting business in the state and does not include exempt supply”.
On analyses of the definition we find the following major items to be looked into to make it a taxable supply:
1. Goods & services
a. Goods includes transfer of ownership, right to use & deferred transfer of ownership. Physical property (tangible goods) that can be supplied including real estate, water, and all forms of energy.
b. Services is very vast and includes everything that is not considered as goods. That means all non tangible goods will come under services.
2. Consideration
Must have some consideration either in kind or money.
3. Person means there has to be transaction between two persons.
4. Business means in the course of business, not single transaction. Business also has been defined as an activity regularly on an ongoing basis by any person in any location.
5. Exempt means the transaction should not be specifically exempt from VAT.
Supply of goods & services consists of Exempt Supplies & Taxable Supplies. Taxable supplies consists of Full Rate & Zero Rate.
Exempt supplies are supplies on which Vat is not charged. Input Tax Credit cannot be claimed on exempt supplies.
Financial Services have been put under exempt supplies.
Similarly supplies of residential buildings is exempt unless it is zero rated, that means second sale of residential buildings will be exempt as first sale within three years after completion is zero rated.
Bare Land is exempt. Bare land means land which is not covered by buildings or civil works.
Local passenger Transport is exempt whether it be by land, water or air from one place in the state to another place in the state.
Full rate supplies are all supplies on which VAT is charged ( 5% as specified)
Zero Rate supplies have been specifically mentioned in the Article 45 of the Decree Law. They are as follows:
1. Direct exports
Of Goods to a place outside the implementing state shall be zero rate. Commercial evidence of export (airway bill, bill of lading, consignment note, certificate of shipment) is retained by the exporter. Supply of goods to designated zone shall not be considered as exports.
Of Services shall be services provided to a recipient who does not have place of residence in the implementing state and also the services are not provided directly in connection with real estate situated in the State shall be zero rate.
2. Export of Telecommunication services when the supply from the implementing state to a supplier who has the place of residence outside the state and the service is initiated outside the implementing state.
3. International Transportation Services for Goods & Passengers from a place in the state to a place outside the state and vice versa. I also includes goods supplied for consumption or sale by an aircraft or ship and also the services supplied during the transportation of services. It also include postage stamp issued by Emirates Post group only if redeemed for transportation of goods outside the state.
4. Certain means of transport shall be zero rate such as commercial aircraft, ship, bus train for transportation of goods & services and not for recreation, pleasure or sports. Services for operating, repairing, maintaining in the same transport shall also be zero rated.
5. Precious metals whether supply or import for investment purpose shall be zero rate. Gold Platinum with 99% or more purity and the metal should be in the form of tradeable global bullion market.
6. Residential Building intended to be inhabited for human occupation for residential purpose and also include orphanages, nursing homes, rest rooms, residences for armed forces and police. Hotel, motel, bed and breakfast establishment or hospital shll not be treated as residential building for zero rate. A small place of residence is used by its occupants as an office or workplace shall be treated as residential building for zero rate.
7. Buildings specially designed to be used by Charities shall be zero rate.
8. Educational services to be treated as zero rate if the curriculum is recognised by the Ministry of Education or competent authority. The institution shall be either owned by the Federal or Local government or receives more than 50% of its funding directly from Government. Printed and digital reading material for such institutes shall also be zero rate. Extracurricular activities provided for fee shall not be zero rate.
9. Healthcare services to be zero rate. It include treatment services provided to the recipient and also includes preventive treatment. The healthcare supply shall be made by the healthcare body or institution, doctor, nurse, technician such as radiologist, dentist or pharmacy licenced by the Ministry of Health. Healthcare services does not include holiday accommodation, elective treatment for cosmetic reasons other than prescribed by doctor.
From the above we can come to conclusion that all goods or services which are related for the common benefit of society and human beings have been kept under zero rate.
But I can foresee one problem with use of Input Tax. The credit will keep laying in his account the goods or services provided are zero rate and Input Tax Credit is allowed. Therefore, the recipient of zero rate goods or services will have to claim refund of the Input Tax Credit.
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