VAT Exemption UAE: Complete List of Tax-Free Goods & Services (2026)

VAT exceptions in the UAE at a glance

People searching for “VAT exceptions” usually mean one of three different things, and each is treated differently. Exempt supplies carry no VAT and block input VAT recovery. Zero-rated supplies are taxable at 0% and keep full recovery. Out-of-scope transactions are not supplies for VAT purposes at all. Here is the full picture under Federal Decree-Law No. 8 of 2017 (Articles 45 and 46) and its Executive Regulation, as amended to September 2026.

What is VAT exemption in the UAE?

An exempt supply is a supply made in the course of business on which no VAT is due, and on which related input VAT cannot be recovered. You do not charge VAT to your customer, but the 5% you pay on your own costs becomes a real cost to the business.

Exemption applies automatically when a supply meets the legal conditions. There is no application, certificate or FTA approval. The burden is on the supplier to prove the conditions were met if the FTA asks, so the evidence you keep matters. Note that “exempt” here is about supplies. It is different from an entity being exempt from Corporate Tax.

VAT exemption vs zero-rated supplies: the difference that matters

The money involved is significant. A business with AED 500,000 of zero-rated sales that pays AED 50,000 of input VAT gets the AED 50,000 back. If the same sales were exempt, that AED 50,000 would be a permanent cost.

Complete list of VAT-exempt supplies in the UAE

1. Financial services

Financial services are exempt when they are margin-based, meaning the provider earns through an interest spread or margin rather than an explicit fee. Exempt examples:

• Interest on loans, credit and finance leases; the margin element of Islamic finance products is treated in the same way as the equivalent conventional product.
• Operating current, deposit and savings accounts where no explicit fee is charged.
• Issue, allotment or transfer of equity and debt securities.
• Provision and transfer of life insurance contracts and life reinsurance.
• Transfer of ownership and conversion of virtual assets, including virtual currencies (exempt from 15 November 2024, applied retrospectively to 1 January 2018, under Cabinet Decision No. 100 of 2024).
• Management of investment funds licensed by a UAE regulator (exempt from 15 November 2024).

Standard-rated at 5%: anything charged as an explicit fee, commission, discount or rebate. Examples include account-maintenance fees, transfer fees, arrangement fees, advisory fees and brokerage. General (non-life) insurance is also standard-rated. Financial services supplied to a recipient outside the GCC can be zero-rated as an export of services if the export conditions are met, rather than being exempt.

2. Residential buildings

The lease or sale of a residential building is exempt, unless it is the zero-rated first supply (below). For a lease to be exempt, it must either run for more than six months or be let to a tenant holding a UAE Emirates ID. Residential buildings include principal places of residence, student accommodation, armed forces and police residences, orphanages and nursing homes.

These are not residential and are standard-rated at 5%: hotels, motels, bed-and-breakfasts, serviced apartments where services beyond accommodation are provided, hospitals, and buildings constructed or converted without lawful authority. Their leases are taxable even when longer than six months.

3. Bare land

The sale or lease of bare land is exempt. Bare land means land with no completed or partially completed buildings or civil engineering works on it. Once construction starts, the treatment follows the building: commercial is 5%, the first supply of a new residential building is 0%, and later residential supplies are exempt.

4. Local passenger transport

Transporting passengers from one place in the UAE to another is exempt when it uses a qualifying means of transport. These are a motor vehicle, taxi, bus, train, tram or monorail designed or adapted to carry passengers; a ferry, abra or similar vessel; or a helicopter or aircraft approved to carry passengers under the Civil Aviation Law. It is not exempt when the trip’s main purpose is pleasure, such as sightseeing tours, desert safaris or leisure cruises. Those trips are standard-rated. Domestic legs that form part of an international journey are zero-rated as international transport.

Zero-rated supplies: the 0% list (Article 45)

Zero-rated supplies are often mistaken for exemptions. The difference is that a business making them charges 0% but recovers its input VAT:

• Exports of goods outside the GCC implementing states, and exports of services to recipients outside the UAE and GCC, where the conditions are met.
• International transport of passengers and goods, and related services.
• Supplies of aircraft and vessels used for commercial transport or rescue, and related goods and services.
• Investment precious metals (gold, silver, platinum) of 99% purity or higher, tradeable in global bullion markets.
• Crude oil and natural gas.
• The first supply of a residential building within three years of completion, and the first supply of a building converted from non-residential to residential use.
• The first supply of buildings designed for charitable use.
• Education: tuition and directly related goods and services, such as curriculum books and learning materials, at recognised nurseries, pre-schools and schools. Higher education is zero-rated only at institutions owned by the government or receiving more than 50% of their annual funding from it.
• Healthcare: preventive and basic healthcare services, and the medicines and medical equipment listed by Cabinet Decision.

Is it VAT exempt? Rent, school fees, healthcare and banking

Is rent VAT exempt in the UAE?

Residential rent is exempt if the lease runs for more than six months or the tenant holds an Emirates ID. Commercial rent (offices, shops, warehouses) is standard-rated at 5%. So are hotel rooms and serviced apartments, whatever the length of stay. A mixed-use building needs the rent split between its residential and commercial parts.

Are school fees VAT exempt?

No. School fees are zero-rated, not exempt, when paid to a recognised nursery, pre-school or school. That lets schools recover their input VAT. Uniforms, IT equipment such as laptops, extracurricular activities charged separately, and food are standard-rated at 5%. University fees are zero-rated only at government-owned or majority-government-funded institutions. Tuition at private universities carries 5%.

Is healthcare VAT exempt in the UAE?

Preventive and basic healthcare is zero-rated, not exempt. It covers services generally accepted as necessary for treatment, supplied by licensed providers. Cosmetic procedures that are not medically necessary are standard-rated. So are medicines and equipment not on the Cabinet’s zero-rated list.

Are bank charges subject to VAT?

Explicit fees (transfer charges, card fees, account-maintenance fees, arrangement fees) carry 5%. Interest and margin-based returns are exempt. A bank therefore makes a mix of taxable and exempt supplies and recovers only part of its input VAT.

How VAT exemption affects your business

Input VAT becomes a cost

Take a landlord leasing residential flats for AED 1,000,000 a year. No VAT is charged on the rent, and the AED 10,000 of VAT paid on AED 200,000 of maintenance and management costs cannot be recovered. That AED 10,000 has to be built into the rent or absorbed.

Registration

Exempt income does not count toward the AED 375,000 mandatory threshold or the AED 187,500 voluntary threshold. A business with only exempt income does not need to register, and cannot. A business with AED 500,000 of exempt rent and AED 100,000 of standard-rated services counts only the AED 100,000. Our VAT registration guide covers the full test.

Mixed supplies and input VAT apportionment

If you make both taxable and exempt supplies, input VAT is split into three buckets:

• VAT on costs used only for taxable (5% or 0%) supplies is fully recoverable.
• VAT on costs used only for exempt supplies is not recoverable.
• VAT on overheads used for both (rent, IT, audit) is recoverable in proportion to your taxable supplies. The standard method uses the value of taxable supplies divided by total supplies, with an annual adjustment. A different method needs FTA approval.

Example: a company with AED 900,000 of taxable supplies and AED 100,000 of exempt supplies recovers about 90% of the VAT on shared overheads, then trues this up at the end of the year.

Documentation for exempt supplies

A tax invoice is not required for the exempt supply itself. You still need evidence that the conditions were met, and you must keep it for at least five years (15 years for real estate):

• Residential leases: signed tenancy contracts showing the term, and a copy of the tenant’s Emirates ID where you rely on the ID test.
• Bare land: title deeds, site plans or photographs showing no buildings or works.
• Financial services: product terms showing whether consideration is a margin or an explicit fee.
• Transport: route records showing UAE-to-UAE journeys and the vehicle type, which also separate pleasure trips.

Failing to keep the records the law requires is a separate administrative violation, starting at AED 10,000 for a first offence. If you cannot prove an exemption during an audit, the supply can also be reassessed at 5%.

Recent changes to UAE VAT exemptions (2023–2026)

• 1 January 2023. Federal Decree-Law No. 18 of 2022 amended 24 articles of the VAT law. It allowed the Executive Regulation to list further out-of-scope supplies and added a definition of “relevant charitable activity”, which is used for the zero-rating of charitable buildings.
• 15 November 2024. Cabinet Decision No. 100 of 2024 exempted the management of UAE-licensed investment funds. It also exempted the transfer and conversion of virtual assets, retrospectively from 1 January 2018.
• 1 January 2026. Federal Decree-Law No. 16 of 2025 removed the need for self-invoices under the reverse charge and introduced a five-year limit on using or reclaiming excess input VAT. It did not change the exempt categories.
• 14 April 2026. Cabinet Decision No. 129 of 2025 reset many administrative penalties. Late payment became 14% per annum, calculated monthly, and a first incorrect return became AED 500, waived if corrected before the due date.

Common VAT exemption mistakes

1. Treating zero-rated as exempt (or the reverse). Schools and clinics that treat themselves as “exempt” lose input VAT they are entitled to recover.
2. Treating serviced apartments as residential. They are standard-rated even on long lets.
3. Assuming everything a bank or fintech does is exempt. Explicit fees are taxable.
4. Counting exempt rent toward the registration threshold. This leads to unnecessary registrations.
5. Recovering VAT on costs that relate to exempt supplies, or skipping the annual apportionment adjustment.
6. Charging 5% on an exempt residential lease. VAT shown on an invoice is payable to the FTA even when it was not due, and the tenant cannot recover it.
7. Not keeping tenancy terms and Emirates ID copies to support the residential exemption.

Worked scenarios

Residential landlord with 20 flats

Twelve-month leases at AED 5,000 a month give AED 1,200,000 of exempt rent. The landlord does not register for VAT and cannot recover the 5% on maintenance. If it also lets two ground-floor shops for AED 400,000 a year, that commercial rent is taxable. It exceeds AED 375,000, so the landlord must register and apportion VAT on shared building costs.

Transport operator

A company earning AED 400,000 from UAE taxi journeys (exempt) and AED 100,000 from desert-safari transfers (standard-rated pleasure trips) has AED 100,000 of taxable supplies. That is below both thresholds, so it does not need to register.

Developer

Bare land bought for AED 10 million is exempt, so no VAT is paid on the purchase. The developer pays AED 500,000 of VAT on construction. Selling the new flats within three years of completion is zero-rated, so it recovers the AED 500,000. Buyers who later resell or lease the flats make exempt supplies.