Overview on VAT in the GCC
VAT registered businesses that supply goods and services are subject to VAT at either the standard or zero rate.
The mandatory registration threshold shall be AED 375,000.
Unless supplies of goods and services are zero rated or exempt, they will be subject to VAT at the standard rate. The standard rate will be 5% across the GCC.
VAT on Education
It is common for many countries across the world to exempt education from VAT. Each GCC country has the discretion to either exempt the education sector from VAT or subject it from VAT at the zero rate.
In addition to education services, for which the education provider usually charges a school or tuition fee, the education provider may also be engaged in other income generating activities such as the sale of goods including school uniforms and school books.
The main educational services and related goods and services supplied shall be zero-rated, if supplied by any of the following ‘qualifying educational institutions:
- Nurseries, preschools and schools
- Higher educational institutions owned or funded by Federal or local Government.
This means that a ‘qualifying educational institution’ shall not charge VAT on the zero-rated educational services they provide, and will be able to recover the VAT they pay on related costs when they file their tax returns. Any educational services provided by other entities not listed above shall be subject to the standard rate (i.e. 5%).
Provision of educational services by a ‘qualifying educational institutions’ is a zero-rated taxable supply. Hence, if the supplies exceed the Mandatory Registration Threshold of AED375,000, then the institution needs to register.
It may apply for exceptions from registration via the registration application if the institution does not provide any services or goods taxed at the standard rate of 5%. Applying for an exception will relieve the school from filing regular returns, but would also mean the school cannot recover the input tax incurred on its expenses.
If a ‘qualifying educational institution’ supplies other goods and services that are directly related to a zero-rated supply of education, they qualify for zero-rating as well. For example, books and digital reading material supplied by educational institutions that are related to the curriculum being taught also qualify for zero-rating.
There are supplies related to the provision of the education services which are subject to the standard rate (i.e. 5%), such as:
- Goods and Services supplied by a ‘qualifying educational institution’ to persons who are not enrolled in it;
- Any Goods, other than educational materials provided by a ‘qualifying
educational institution’, that are consumed or transformed by the students being taught by it;
- Uniforms or any other clothing which are required to be worn by a
‘qualifying educational institution’, irrespective of whether or not they are supplied by such institution as part of the supply of educational services.
- Electronic devices used in educational services, irrespective of whether or not supplied by a ‘qualifying educational institution’ as part of the supply of educational services.
To summarise, the impact of VAT on school uniforms in the UAE will be a 5% increase to the end consumer.
Parents can prepare themselves better by purchasing school uniforms before 1st January 2018 when the new VAT rules take effect.
The VAT impact on school books in the UAE that are related to the curriculum will be zero rated and will not be affected by the implementation of VAT.
Sarah Ferguson FCCA MAAT AFTA MBA
Sarah Ferguson Tax Consultancy