VAT rate in UAE: 5%, zero-rated, exempt and out-of-scope supplies explained

You ask in plain English, the AI does the bookkeeping work, and you or your accountant approve the result.

• You ask: “Which of our sales lines this quarter are zero-rated and which are exempt?”
• The AI agent: HelloBooks groups every invoice line by its VAT treatment, totals each group, and lists lines where the treatment differs from the default for that item or customer so you can spot a mis-coded line.
• You review: You or your accountant confirm the treatment of any unusual line against the law before it reaches the return.

Article 3 of Federal Decree-Law No. 8 of 2017 imposes a standard rate of 5% on supplies and imports covered by Article 2, subject to the special rules in the law. Most goods and services sold in the UAE fall here: retail sales in Dubai Mall, consulting in Abu Dhabi, a car service in Sharjah. On an AED 2,400 invoice the VAT is AED 120 and the customer pays AED 2,520.

Article 45 lists zero-rated supplies. They include exports of goods and services outside the GCC implementing states, international transport of passengers and goods, investment precious metals, the first supply of qualifying residential buildings within three years of completion, crude oil and natural gas, and certain education and healthcare services. You charge 0%, report the sale, and keep full recovery of input VAT.

Article 46 lists exempt supplies: certain financial services, residential property sold or leased (other than the zero-rated cases), bare land and local passenger transport. You charge nothing, and input VAT linked to these sales generally cannot be recovered. A business with both kinds of sales apportions its input VAT under Article 55 of the Executive Regulation.

Some transactions never enter the VAT calculation. Goods moving between Designated Zones under Article 51 of the Decree-Law are one example, where the conditions are met. Salaries paid to staff and dividends are others in everyday bookkeeping. These lines still belong in the ledger, but not in the taxable or exempt boxes of the return.

• Standard-rated: 5% charged, input VAT recoverable
• Zero-rated: 0% charged, input VAT recoverable
• Exempt: no VAT charged, related input VAT not recoverable
• Out of scope: not a supply for VAT purposes, not reported as one

Each item and each customer carries a default treatment, and every invoice line can be overridden when a sale is different. The AI agent suggests the treatment when it drafts an invoice, using the item, the customer's location and past invoices, and highlights lines that look inconsistent. If your business needs its own treatment rules, for example a clinic splitting zero-rated treatment from cosmetic services, the team can configure AI categorisation rules after a call booked at /book-a-demo.