UAE has always been famous for its some of the unique features, such as 0% crime rate, swanky police cars, 0% tax, and much more. But now, countries have introduced Value Added Tax as an indirect tax. Ever since the VAT has been announced in Gulf countries, the number of debates have been going on about the negative and positive effects of this tax. Businesses that supply goods and services and registered under VAT are liable to pay either at zero rate or standard rate. They can claim a credit if the VAT is related to a supply entitled to standard or zero rate. But, if the supply is exempt from the VAT, then it cannot be reclaimed. The standard VAT rate across GCC is 5%. As far as the education sector is concerned, it has been exempted by many countries in the world. As per the GCC VAT framework agreement, a country level agreement between GCC member states that explains the common principles about VAT laws of individual countries, each GCC country can choose to either exempt or subject education sector from VAT at the zero rate.
VAT treatment in the education sector
Soon after the VAT was implied, people have been confused whether the tax is to be paid for higher education or not as school tuition had been exempted or “zero-rated.” However, the Federal Tax Authority has clarified the situation by announcing that higher education institutions like universities are not exempted from tax except if they are federal or government-owned, or their more than 50% funds are received directly from federal or local governments. These institutes are called ‘qualifying educational institution.’ So, private universities have to collect VAT on behalf of the government.
Students accommodation comes under the heading of residential accommodation and thus is exempted from the VAT. It doesn’t include the first supply of any residential building. Similarly, institutions that provide student accommodation will not be able to collect VAT related to provisions of the accommodation.
Related goods and services
If the ‘qualifying educational institution’ supplies those goods or services which are directly related to zero-rated educational supply, then it is also be charged at zero rate. For example, books and digital study material are supplied by the institutes that provide services related to curriculum; then it will also qualify for zero-rated VAT.
Those services which are mentioned by the federal or local government that is regulating the education sector can be included in the zero-rated VAT. If the supplies of an educational entity are not in accordance with the curriculum, then it will have to charge the standard rate, i.e., 5% on such supplies. In some of the limited cases, education institutes may provide free of charge services to the students where education is completely funded by government grants. In such case, it still meets all the conditions of zero-ratings, so the income from grants are treated as the zero-rated VAT.
Exceptions to zero-rating
1.If ‘qualifying institutes’ supply goods and services to the person not enrolled in it.
2.Any other goods except educational materials that are supplied by zero-rated institutes for the consumption of students studying in it.
3.Uniforms that need to be worn in these institutes, whether they are supplied by them as educational service or not.
4.Electronic devices that are used in the institutes even if they are a part of educational services.
5.Food and beverages supplied by them or vouchers and vending machines related to the same.
6.Membership of any student organization.
All these services and supplies are charged at the standard rate of 5%.
It may be difficult to understand the whole concept of VAT at once, and you may face certain confusions. But, we hope that this blog would prove to be a stepping stone to VAT implementation.
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