Does VAT apply to Financial Services in the UAE?

When dealing with goods and services in the UAE, it is essential to be aware of which services or goods are subject to VAT and which are not. For smooth taxation, businesses must determine which services are exempt and which are not, either independently or with the assistance of VAT agents in the UAE. 

Let Tax Gian help you determine whether financial services are VAT-exempt in the UAE.  

What is a VAT Exemption?

In the UAE, the supply of all goods and services is subject to VAT unless the goods or services fall under a specific exemption category. There are certain exemptions available under VAT law, which means that on some goods or services, suppliers can not charge VAT. However, the suppliers are also unable to claim input tax for any VAT they have paid on expenses associated with producing such supplies.

Difference Between Zero-Rated & Exempt Supplies

There is one significant difference between zero-rated and exempt supplies that businesses should be aware of. In case of zero-rated supplies, where VAT is charged at 0%, the supplier is able to claim input tax for any VAT they have paid on expenses associated with producing such supplies (input tax). However, in the case of exempt supplies, the supplier can not claim any input tax. This does not impact the customers at all as they won’t be charged VAT in either case, but the impact for the supplier is huge.

Still confused? Ask VAT agents in Dubai.

Financial Services: VAT-Exempt or Not?

Yes, financial services are one of the few services that are exempt from VAT in the UAE. Other necessary VAT exemptions include local passenger transport, residential buildings, and bare land. 

What Constitutes Financial Services?

Two main factors decide whether or not a supply of financial services falls within the scope of VAT exemption;

1. The particular service being given
2. If the amount charged for the service is margin-based or fee-based

Factor 1: The particular service being given

Financial services include those related to the exchange of money or its equivalent and the granting of credit, including:

• Currency exchange
• Issuance, collection, payment, and ownership transfer of a letter, credit or cheque.
• Issuance, endorsement, acceptance, drawing, allotment, and ownership transfer of a debt security
• Provision of credit, advance, or loan.
• Variation or renewal of a credit contract, equity security, or debt security.
• The provision, variation, release, or taking of a bond, security, indemnity, or guarantee in connection with the fulfilment of an obligation under a debt security, equity security, credit, or cheque.
• Operation of a savings, deposit, or current account.
• Provision or ownership transfer of financial instruments like credit default swaps, swaps, options, or derivatives.
• Collection or payment of dividend, principal, interest, credit, equity or debt security, or life insurance contract.

Ask VAT agents in the UAE about the specific services you provide.

Factor 2: If the amount charged for the service is margin-based or fee-based

If any of the above-listed financial services is performed and a discount, payment, commission, or similar charge is made in return for it, then such a financial service supply will not fall under the scope of the exemption, and VAT will be charged at the standard rate. This covers the fee-based scenario.

However, the margin-based charging of supplies, which is clearly not a fee, discount, commission, or similar payment, will remain VAT-exempt. 

Additional Exemption Rules for Financial Services

• VAT applies to supplies of financial services made under both non-Islamic and Islamic arrangements in the same manner. 
• Islamic finance products that are certified as Islamic Shariah compliant and that produce the same outcome as a non-Shariah compliant financial product will be regarded in the same way as the corresponding non-Shariah product for deciding whether a financial service is exempt.
• The issuance, allotment, or ownership transfer of a debt security or equity will remain VAT-exempt, irrespective of whether the pricing is margin-based or fee-based.
• Provision, ownership transfer, or reinsurance of a life insurance agreement will be VAT-exempt.
• If a financial service supply falls under VAT exemption when done inside the UAE but qualifies for zero-rated when done outside the GCC, in that case, it will be considered zero-rated for the purposes of VAT and not exempt.

Clear any confusion by directly asking VAT agents in Dubai.

How can Tax Gian Assist?

Financial services illustrated above are exempt from VAT in the UAE. If you found the above information comprehensive, do not hesitate to ask our expert VAT agents at Tax Gian for more details and information. Our VAT professionals can provide you with thorough guidance on any VAT matter, and we’re just a click away.