UAE Corporate Tax: what changes at the AED 375,000 threshold
How the 0% and 9% bands work and what to prepare before your first return.
The core difference
Zero-rated supplies are taxable supplies charged at 0%. Because they are taxable, you can recover the input VAT you paid on the costs of making them.
Exempt supplies are outside the VAT charge altogether. You charge no VAT, and the input VAT on related costs generally cannot be recovered. It becomes a real cost to the business.
A worked comparison
Two businesses each spend AED 1,000,000 on standard-rated costs, paying AED 50,000 of VAT to suppliers.
| AED | Zero-rated business | Exempt business |
|---|---|---|
| Costs before VAT | 1,000,000 | 1,000,000 |
| Input VAT paid at 5% | 50,000 | 50,000 |
| Input VAT recovered | (50,000) | 0 |
| Total cost to the business | 1,000,000 | 1,050,000 |
Same invoices, same suppliers, AED 50,000 difference in cost. That is why getting the classification right matters.
Common zero-rated supplies
- Exports of goods outside the GCC implementing states, with proof of export.
- Certain services supplied to customers outside the UAE, where the conditions are met.
- International transport of passengers and goods.
- The first supply of a new residential building within three years of completion.
- Qualifying education and healthcare services and related goods.
- Investment precious metals, such as gold of 99% purity or more.
Common exempt supplies
- Certain financial services, such as interest on loans and life insurance, where no explicit fee is charged.
- Residential property after its first supply, both rent and sale.
- Bare land.
- Local passenger transport.
If you make both taxable and exempt supplies, your input VAT has to be split, and the split is reviewed every year.
Businesses with both
Many businesses make a mix: a property company with commercial and residential units, or a group with a finance company inside it. Input VAT that relates directly to taxable supplies is recoverable; input VAT that relates directly to exempt supplies is not. Shared costs, such as head-office rent and audit fees, are apportioned, usually based on the ratio of taxable to total supplies, with an annual adjustment. Getting the method wrong can mean over-claiming for years.
What to check in your business
- List every type of income and confirm whether it is standard-rated, zero-rated, exempt or out of scope.
- For each zero-rated supply, confirm you keep the evidence the law requires.
- If you have any exempt income, confirm input VAT is apportioned and the annual adjustment is done.
- Check that invoices and the VAT return show each category correctly.
For return-level checks, see getting your VAT return right the first time.
This article is general information based on UAE VAT law as published by the Federal Tax Authority. Conditions for zero-rating and exemption are detailed and change over time. It is not advice for your business. Ask Hassan to review how your supplies are treated.
Official source: Federal Tax Authority
