In education sector, zero-rated VAT will be applied for

  • Nurseries, preschools and schools.
  • Private and public school education (excluding higher education) & related goods and services provided by the educational institution.
  • Higher education provided by institution owned by the government or 50% funded by the government, and related goods and services.

This means that a ‘Qualifying education institution ‘shall not charge VAT on the zero-rated educational services they provide and will be able to recover the VAT they pay on related costs when they file their tax returns.

Qualifying education institution

Educational entities recognized by the federal or local competent government entity regulating the education sector where the course is delivered, and in the case of higher education institutions, they are either owned by the federal or local government or receive more than 50% of their annual funding directly from the federal or local government.

That means that education provided by all other educational entities does not qualify for zero-rating and such institutions must charge standard-rate VAT on their supplies of education.

 Qualifying educational institution and registration for VAT

Provision of educational services by a ‘qualifying educational institutions’ is a zero-rated taxable supply. The institution needs to register if the supplies exceed the mandatory registration threshold of Dh.375, 000.

It may apply for exceptions from registration via the registration application if the institution does not provide any services or goods taxed at the standard rate of 5%.  Applying for an exception will relieve the school from filing regular returns, but would also mean the school cannot recover the input tax incurred on its expenses.

Zero-rated educational services

Services provided in accordance with the curriculum recognized by the federal or local competent government entity regulating the education sector where the course is delivered.

Related goods and services

Goods and services directly related to a zero-rated supply of education.

Ex. Books and digital reading material supplied by educational institutions that are related to the curriculum being taught.

According to the official directives, following services will have to pay 5 percent tax despite receiving support from recognized educational institutions.

Exceptions to Zero-rating (Standard rate – 5%)

  1. Goods and services supplied to non-students and faculty.
  2. Any goods other than educational material not related to the curriculum.
  3. School Uniforms supplied by the educational institute.
  4. Electronic not a part of educational services.
  5. Foods and Beverages offered at the educational institutions.
  6. Excursions or field trips not a part of the curriculum.
  7. Extracurricular activities organized by the educational institutions.
  8. Supply of membership in an educational institution.

Another exception to zero rating is the provision of school transportation, which falls under “domestic transportation” and hence is exempt.

VAT treatment of student accommodation

Student accommodation is included within in the definition of residential accommodation, therefore the supply of student accommodation (other than the first supply of a new residential building) will be exempt from VAT.  Educational institutions which also supply accommodation to students will be unable to recover VAT incurred on costs which directly relate to the provision of the accommodation.

Grand Income or sponsorship received

The government or third parties provide grant income or sponsorships to educational institutions.  If the institution provides a benefit in return to the donor for the funding received, then VAT is accounted on the income received.

Benefits like naming an event after a sponsor, printing the sponsor’s logo in t-shirts, giving free tickets.

No benefit received in return for the sponsorship – VAT is outside the scop

VAT on grant-funded research subject

 VAT on grant funded research subject depends on the benefits received by the funder of the research.  Standard VAT is applied when there is a supply of research services. Grant income received will be outside the scope of VAT, if the funder receives only the incidental information like updates about the progress of research, evidences regarding the research conducted, etc.