Air and other forms of international travel – including aircraft, fares and supplies – are exempt from the UAE’s forthcoming value added tax (VAT), according to a decree.
UAE President Sheikh Khalifa bin Zayed Al Nahyan on Sunday issued a federal decree regulating VAT.
The tax will be imposed from January 2018 with one of the lowest rates in the world – 5 percent on the import and supply of goods and services at each stage of production and distribution, the government said.
However, the decree sets out several exemptions, where so-called “zero-rating” applies.
Among the exemptions are international transportation of passengers and goods by air, sea and land, meaning international airfares will not be subject to the tax.
In addition, goods required to service, supply and maintain the transport industry – including aircraft, new parts and on-board supplies such as catering – will be exempt from the tax, the decree states.
Quoting the regulations, UAE state news agency WAM said: “Zero rating also applies to…the supply of goods and services related to the means of transport, which are for operating, repairing, maintaining or converting them, [and] the supply of aircrafts or vessels designated for use in the assistance or rescue by air or sea.”
It added the exemption applied to “the supply of goods and services…designated for consumption on board; or anything consumed by means of transportation.”
Other exemptions include newly built residential properties for the first three years after completion, to allow developers to recover VAT on construction costs; local transport, empty land, some precious metals and some financial services.
Some services and sectors related to education and healthcare will also be zero-rated, including state-run schools and universities.
WAM reported that the full regulatory framework for VAT, set to be published in the fourth quarter of this year, will include more details about the implementation of the tax and possible other exemptions.
Sheikh Hamdan bin Rashid Al Maktoum, Deputy Ruler of Dubai, UAE Minister of Finance and Chairman of the Federal Tax Authority, said: “The Federal Decree law is the bedrock of the UAE’s planned tax system, which was designed to meet the most stringent of standards and best practices.
“VAT…will bring a new revenue stream for the national economy and GDP. This, in turn, will ensure consistency in the high quality of government services, to mirror the UAE’s advanced position on several global competitiveness indexes.”
Other GCC states are expected to introduce VAT within the 12 months between 1 January 2018 and 1 January 2019.