Answers to all your questions about VAT on cars: FAQs

Do I need to pay VAT on purchasing a car?

If you are purchasing a brand-new car from the agency, or a pre-owned car registered under the agency or dealer, then you’ll have to pay 5% VAT on the car’s value. 

Do I need to pay VAT on purchasing secondhand cars?

If you are buying a used car that is still registered under the original owner but being sold through a dealer, you will have to pay 5% on the profit the car dealer is making.

Does VAT apply to installments paid on car loans?

No. VAT is not applicable for car loan installments and their associated interest rates.

Is VAT applicable on registration fees for car licenses?

No. VAT is not applicable for car license registration and inspection fees (Tarkhees).

Is VAT applicable on gas products like petrol and diesel?

Yes, a standard rate of 5% is applicable to petrol, diesel, and other oil and gas products at the pump.

Is VAT applicable on car maintenance charges?

Yes, a standard rate of 5% is applicable on periodic vehicle servicing, such as oil changes and car washes at the service station.

Is VAT applicable on car repair services?

Yes, a standard rate of 5% is applicable on car repair services.

Is VAT applicable on spare car parts?

Yes, a standard rate of 5% is applicable on purchases of spare parts.

Are labour camps and labour accommodations subject to VAT?

It depends whether the accommodation is considered residential or commercial.

• If the labourers are provided with an accommodation in a residential building, then it is tax exempt. 

• If there are additional services provided along with the accommodation, then it is considered commercial and subject to the standard VAT rate of 5%. 

When is a labour accommodation considered a residential property in the UAE?

A labour accommodation is considered to be residential when the following conditions are met:

• Employees have occupied the building as their principal place of residence. 

• The building is immovable and is fixed to the ground.

• The building has been constructed or converted into a residential property legally. 

• There are no additional services provided along with accommodation (as in the case of a hotel, bed and breakfast establishment, or serviced apartment). 

When is a labour accommodation considered a serviced accommodation?

If the following additional services are provided along with accommodation, it is considered a serviced accommodation. 

• Telephone and internet access

• Cleaning services provided for rooms other than the communal areas

• Changing of bed linen on a regular basis along with laundry services

• Catering services

• General maintenances services provided for the rooms (in addition to the services provided for the upkeep of the whole property)

What are some of the services provided as part of residential property?

The following services are typically provided at no extra charge and are considered a part of residential property. 

• Cleaning of communal areas

• Services provided for the maintenance of the property

• Pest control

• Garbage control

• Security

• Utilities such as electricity and water 

• Access to general facilities such as launderettes, gyms, pools, or prayer rooms 

Is my law firm required to register for VAT in the UAE?

Any law firm in the UAE with an annual turnover of AED 375,000 or above is liable to register for VAT. These firms are also required to charge VAT on the legal services they provide to their clients. But VAT is not applicable on the salary paid to the lawyers working for a law company. 

International law firms that provide taxable legal services or conduct business transactions in the UAE are required to register for VAT, irrespective of their turnover.

What is the VAT rate on the legal services I provide?

All VAT registered law firms in the UAE are required to charge a standard rate of five percent on their services. 

Can I recover the VAT that I’ve paid on input costs for my law firm?

Yes, any UAE VAT registered law firm can claim input tax credit for the VAT paid on input costs. 

How does the reverse charge mechanism work for law firms?

When an unregistered law firm that is not required to register for VAT provides services to a VAT registered person or a company in the UAE, those services are exempt from VAT. In such cases, the registered person or company receiving the services must pay VAT directly to the government. 

What will attract a penalty for my law firm?

The following offences made by a law firm will attract a penalty: 

• If a law firm that is liable to register for VAT does not register before the last date of registration
• If a law firm does not file VAT returns at all 
• If a law firm does not file VAT returns on time
• If a law firm files wrongful returns
• If there is tax evasion

What records should I maintain for my law firm?

All VAT registered law firms in the UAE must maintain the following records: 

• Accounting records
• Business agreements and contracts
• Documents related to new and existing holding companies
• Documents related to their turnover
• Records of sale or transfer of assets 
• Ownership and registration records
• VAT invoices and bills
• Tax records if any

How are medications treated under VAT?

Medications are zero-rated under VAT.

Medications are defined by the Cabinet of the UAE as:

“Every product containing a substance(s) which achieves the intended objective in or on the human body via biological effect, which is produced, sold or offered for use in cases relating to diagnosing, treating, healing, relieving or preventing diseases, or renewing, correcting or rehabilitating the function of body organs.”

How is medical equipment treated under VAT?

Medical equipment registered or approved by the Ministry of Health and Prevention is zero-rated under VAT.

Which medical services are zero-rated?

The following medical services are zero-rated:

• Preventive healthcare and treatment services (provided by a healthcare institution, physician, nurse, dentist or pharmacy licensed by the Ministry of Health and Prevention or the competent authority).
• Medications registered or approved by the Ministry of Health and Prevention.
• Medical equipment registered or approved by the Ministry of Health and Prevention.

Which medical services are taxed under VAT?

The following services are taxed under VAT:

• Medications that are not registered or approved by the Ministry of Health and Prevention.
• Other healthcare services that are not for treatment and are not preventive.

What are the VAT rates in the healthcare sector?

Is online shopping taxable?

Yes, online shopping is taxable at 5%.

Is VAT applicable on Salik recharge cards?

No, VAT is not applicable on Salik recharge cards.

If you have been charged VAT upon buying Salik recharge cards, you can ask for a refund from the supplier.

Are data packages subject to VAT?

Data packages that were purchased in 2017 and are still in effect in 2018 will be subject to VAT.
 

Are recharge cards subject to VAT?

No, VAT is not applicable on recharge cards.

What is a public transport according to the UAE VAT law?

Any mass transportation service that is available to any individual, without limitation or exception to a specific group, is a public transport. A public transport must have the following features:

• The passengers must be allowed to pay for the transportation service through a payment booth, ticket scanner or any device that takes payment and provides a ticket.
• There must be branding within or outside the vehicle that indicates that the transportation service is available to all.
• The entity regulating the public transportation in the Emirate of operation must be displayed in the branding.
• There must be evidence that the vehicle is required to comply with specifications laid down by the authority regulating public transportation in the Emirate of operation, or there must be a requirement to pay for a specific test determined by the relevant authority before being approved for use to transport passengers.
• There should be a provision to display third-party advertisement materials on or within the vehicle.

What is a private transport and how is it treated under the UAE VAT law?

Any means of transportation that is used to transport a specific group of people on a contractual basis is considered to be a private transport. Under the UAE VAT law, private transportation services will attract a standard VAT rate of 5%.

Some examples of private transportation include school buses, buses that are used to transport employees or workers to or from a work place, and shuttle buses that transport hotel guests from the hotel to other locations or vice versa.

Will the same VAT treatment apply to the purchase of a vehicle and transportation service made using the same vehicle?

No, the VAT treatment applied on the purchase of a vehicle will not determine the VAT treatment on transport service made using the same vehicle. The use of the vehicle determines the VAT treatment.

Can I recover VAT paid on costs related to international transportation of passengers or goods?

Yes, you can recover input tax paid on costs relating to international transportation of passengers or goods. This is because the UAE law states that the international transportation of passengers of goods that begins, ends, or passes through the UAE will be zero-rated.

What type of local transportation services are exempt from VAT?

Any means of local transportation made by land, water, or air that transports passengers within the UAE is exempt from VAT. Examples of local transport include taxi, bus, railway train, tram, and monorail.

VAT incurred on costs related to providing exempt local transportation services cannot be recovered.

What type of transportation supply qualifies for zero-rated VAT?

The supply of a transportation service via a bus or a train that is intended for public use and can transport 10 or more passengers qualifies for zero-rated VAT.