Zero-rated means you charge VAT at 0% but keep full recovery of your input tax. Exempt means you charge nothing and lose the recovery. The difference is worth real money, and exports of goods and services are where UAE businesses most often get the classification wrong — usually by assuming any overseas customer means 0%.
Zero-rated is not the same as exempt
| Zero-rated | Exempt | |
|---|---|---|
| VAT charged to customer | 0% | None |
| Input tax recovery | Full | Blocked |
| Counts towards registration threshold | Yes | No |
| Typical UAE examples | Exports, international transport, certain healthcare and education, first supply of residential property | Certain financial services, bare land, local passenger transport, subsequent residential supplies |
For a business making only zero-rated supplies, VAT is a net refund position — you recover input tax and charge nothing. For a business making exempt supplies, VAT is a cost buried in the margin. Getting a supply into the wrong bucket therefore changes your economics, not just your paperwork.
Exporting goods
An export of goods outside the GCC implementing states can be zero-rated, but only where you hold evidence that the goods actually left the UAE within the prescribed period. The zero rate attaches to the physical movement, not to the customer’s address.
Evidence normally means official and commercial documentation together: the customs export declaration, the bill of lading or airway bill, and shipping or courier records tying the consignment to the invoice. An invoice addressed to an overseas company, on its own, proves nothing.
The failure mode is predictable. Goods are sold to a foreign buyer but collected from your Dubai warehouse by their local agent. That is not an export you can evidence — you did not ship it and you hold no proof it left. Zero-rating it is a 5% exposure sitting on your return.
If you operate from a designated zone the analysis differs again, because movements in and out of designated zones have their own treatment for goods. Our designated zones guide covers that.
Exporting services: the harder test
Services are where most errors happen, because the rule is not simply “overseas customer equals 0%”. Broadly, a service supplied to a recipient who has no place of residence in the UAE and who is outside the UAE at the time the service is performed can be zero-rated — but there are important carve-outs.
The zero rate generally does not apply where:
- The service is performed on goods or property physically located in the UAE — a survey of a Dubai building for an overseas owner is a UAE-situated service
- The service is consumed or enjoyed in the UAE, even though the payer is overseas
- The recipient has a UAE establishment most closely connected to the supply, even if the contracting entity is foreign
That third point catches groups. If you invoice an overseas parent for work that in substance benefits its UAE subsidiary, the supply is likely standard-rated. Who pays the invoice does not determine the treatment; who receives the benefit largely does. It also raises transfer pricing questions where the parties are related.
What to keep
- Contracts showing who the recipient is and where the service is delivered
- Evidence of the recipient’s status — no UAE establishment, and outside the UAE when the service was performed
- For goods: customs declarations and transport documents tied to the invoice
- Correspondence supporting where the benefit was actually received
Retain it for the statutory period — see record retention requirements. Zero-rating is a claim you make, and the burden of evidencing it sits with you.
Frequently asked questions
What is the difference between zero-rated and exempt in the UAE?
Zero-rated supplies carry VAT at 0% with full input tax recovery. Exempt supplies carry no VAT and block recovery of related input tax, making the VAT a real cost.
Can I zero-rate any sale to a foreign customer?
No. For goods you need evidence they physically left the UAE. For services the recipient must be outside the UAE with no relevant UAE establishment, and the service must not relate to UAE-located property or be consumed here.
What evidence do I need to zero-rate an export?
Customs export declaration, transport documentation such as a bill of lading or airway bill, and commercial records linking the shipment to the invoice.
My overseas parent pays the invoice but the work benefits the UAE subsidiary. Is that zero-rated?
Usually not. Where the supply is most closely connected to a UAE establishment, it is generally standard-rated regardless of who is billed.
Do zero-rated supplies count towards the registration threshold?
Yes. Zero-rated supplies are taxable supplies and count. Exempt supplies do not.
What if the customer collects the goods from my UAE warehouse?
You will struggle to evidence export because you did not ship them. That is a common source of assessed underpayments.
What happens if I zero-rate incorrectly?
The FTA can reclassify the supply as standard-rated and assess the 5% with penalties. Correcting it yourself through voluntary disclosure is normally cheaper.