Zero-Rated vs Exempt Supplies in UAE VAT

By Shihabudeen Pattasseri, FTA-Registered Tax Agent (TAAN 20056925) · Updated 2026-11-03

One of the most common VAT mistakes is confusing zero-rated and exempt supplies. Both mean no VAT is charged to the customer, but they are treated very differently for input VAT recovery — and that difference affects your cash and your compliance.

Zero-rated supplies (0%)

You charge VAT at 0%, and you can still recover the input VAT on your related costs. Examples include certain exports of goods and services outside the GCC, international transport, investment-grade precious metals, and specific healthcare and education supplies.

Exempt supplies

No VAT is charged, and you generally cannot recover the input VAT on related costs. Examples include many financial services, residential property after the first supply, bare land and local passenger transport.

Why the difference matters

• Zero-rated: no VAT to customer, full input VAT recovery
• Exempt: no VAT to customer, no input VAT recovery
• Businesses making both taxable and exempt supplies must apportion input VAT

Mixed (partial exemption)

If you make both taxable and exempt supplies, you can only recover the input VAT attributable to your taxable activities, plus a proportion of general overheads. Getting the apportionment right is where many businesses need help.

Frequently asked questions

Is zero-rated the same as exempt?

No. Both mean no VAT is charged to the customer, but zero-rated supplies allow input VAT recovery and exempt supplies do not.

Is residential rent exempt or zero-rated?

The first supply of new residential property is zero-rated; subsequent residential supplies are generally exempt.

Can I recover VAT on costs for exempt supplies?

Generally no. Input VAT linked to exempt supplies is not recoverable, and mixed businesses must apportion.

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