Confusing standard rated, zero rated, and exempt supplies is one of the most expensive VAT mistakes UAE businesses make. This guide explains each category clearly — and links to Herald’s indirect tax (VAT) services for professional support.
The Three Categories of UAE VAT — At a Glance
| VAT Category | VAT Rate | VAT Charged to Customer? | Input VAT Recoverable? |
|---|---|---|---|
| Standard Rated | 5% | Yes — 5% added to invoice | Yes — fully recoverable |
| Zero Rated | 0% | Yes — at 0% (listed on invoice) | Yes — fully recoverable |
| Exempt | N/A | No VAT charged | No — cannot recover related input VAT |
Standard Rated Supplies (5%)
The standard rate of 5% applies to the vast majority of goods and services in the UAE — including all professional and financial advisory services. Herald’s indirect tax team ensures you charge, collect, and remit VAT correctly.
- Accounting, audit, and professional services — standard rated at 5%
- Most retail goods and restaurant services — 5%
- Commercial rent and leasing — 5%
- ERP and digital transformation services — 5%. See Herald’s ERP solutions
Zero Rated Supplies (0%)
Zero rated supplies ARE taxable supplies — the rate just happens to be 0%. This matters because zero rated suppliers CAN recover input VAT on related costs, unlike exempt suppliers.
- Exports of goods outside the UAE
- International transport of passengers and goods
- Certain healthcare and educational services
- First supply of residential properties (new builds)
Exempt Supplies
Exempt supplies fall completely outside the VAT system. No VAT is charged, and businesses CANNOT recover input VAT on costs related to exempt activities.
- Bare land transactions
- Local passenger transport services
- Residential property — subsequent sales and long-term leases
| Critical Mistake to AvoidMany UAE businesses incorrectly treat zero rated supplies as “exempt” — blocking their right to recover input VAT. If your business exports goods or provides international services, classify these as zero rated, not exempt. |
How Mixed Supplies Affect Your VAT Return
If your business makes both taxable and exempt supplies, you must calculate an input VAT recovery ratio. Herald’s indirect tax specialists handle partial exemption calculations and ensure you maximise legitimate input VAT recovery.
Frequently Asked Questions
Is commercial rent in Dubai subject to VAT?
Yes — commercial property rent (offices, retail, warehouses) is standard rated at 5%. Long-term residential rent is exempt. For complex property VAT questions, contact Herald’s indirect tax team.
Are professional services like accounting and legal fees subject to UAE VAT?
Yes. Accounting, auditing, legal, and consulting services in the UAE are standard rated at 5%. Services provided to overseas clients may qualify as zero rated exports of services — consult a VAT advisor.
| Need Help Classifying Your Supplies?Herald’s VAT advisory team helps UAE businesses correctly classify supplies, optimise input VAT recovery, and file accurate returns. Book a VAT health check today. |
