VAT Implications For The Education Sector in UAE

The education industry is a crucial sector for any country. In the UAE, the government is focusing on the education sector to address the increasing demand for qualified executives. The Ministry of Education aims to build a competitive society by developing an innovative and knowledgeable system.

Quality education is the need and right of any country. So, the UAE government does not put much VAT pressure on education providers and related services. Some of the educational services and associated products and services are relaxed from the VAT burden in the country. But, the treatment is not as simple as it looks. There are different scenarios and cases to look into.

Let’s look at how the UAE VAT treats the education sector. Following are the exempt, zero-rated, and standard-rated supplies for pre-schools, schools, nurseries, universities, and higher educational institutions:

VAT treatment of the education sector

Exempted VAT For Education Sector

Transportation services provided to students from the place of residence to the place of educational institution and vice versa are exempt from VAT.

Zero-rated VAT For Education Sector UAE

If the educational institution and curriculum of nurseries, pre-schools, and schools are recognized by the Federal or Emirati government, the VAT rate on the supply of educational services is 0%. In the case of universities and higher education institutions, either it should be owned by the Federal or Emirati government, or 50% annual funding must be from the government for zero-rated supplies.

If educational institutions providing zero-rated supplies, also make the supply of related goods and services, then those are zero-rated as well. Moreover, the supply of printed or digital reading material related to the curriculum is also zero-rated.

Any extracurricular activities provided to students without any extra fees are zero-rated.

Standard-rated VAT For Education Sector

Standard VAT rate of 5% is applicable on the following:

Educational supplies by educational institutions that do not qualify for zero-rated supplies
School uniforms and laboratory clothing, whether or not it is a part of the supply of educational services
Food and beverages in schools’ canteens
Electronic devices, whether or not as a part of the supply of educational services
Rental of halls and auditoriums
Extracurricular activities conducted in educational institutions at extra charges
Any goods or services provided by a business that is not an educational institution
Any supplies made to individuals that have not enrolled in any educational institutions
Membership services in a student organization
Research services carried out by higher educational institutes and universities for external entities
The fees for registration and/or application at the time of registration of the applicant to an educational institution
For any kind of soft skills development courses that do not fall under the recognized curriculum, a VAT rate of 5% is applicable. Similar is the case with professional courses provided by professional firms that do not follow the curriculum recognized by the government, to their clients’ employees.

Specific cases

VAT on supplies to non-student persons is 5% because the students are not enrolled in the curriculum.
Supplies from vending machines are subject to VAT at 5%. In this case, the date of collection of funds from the vending machines is considered as the date of supply.
Supply of monetary voucher for consideration up to the face value is not considered for VAT; when the voucher is redeemed, the VAT liability arises.
If a field trip is not related to the curriculum and is predominantly recreational, then VAT at 5% is applicable. If it is related to the curriculum and is not recreational principally, then it is considered a zero-rated supply.
Free of charge educational services that are funded by government grants are considered zero-rated if these services meet all the conditions of zero-rating.
Student accommodation is exempt from VAT, except the first supply of a new residential building. For any expenses incurred by educational institutions in the provision of this accommodation, recovery of VAT incurred on these expenses is not allowed.
If educational institutions receive some grant incomes or sponsorships from third parties or government and if the donor does not receive a benefit in exchange, then the income is out of VAT scope. But if the donor receives some benefits such as reduced-price tickets, etc. then you must account for VAT at 5% on the donation received.
If educational institutions receive some grant income for research projects and if the funder does not receive a benefit in exchange, then the income is out of VAT scope. But if the funder receives some benefits such as intellectual property, etc. then you must account for VAT at 5% on the grant received.

Provisions related to registration, tax invoices, and tax returns

If the educational institutions provide zero-rated and/or standard-rated goods and services and their supplies are less than AED375,000.0 in the last 12 months or are expected to be less than this amount in the next 30 days, then they are not required to register for VAT. If it is more, they must register for VAT.

For voluntary registration, the threshold amount is AED187,500.0. If the educational institution is making only zero-rated supplies, then it can apply for an exception from VAT registration through the registration application. With exception from VAT registration, the firm is not required to file tax returns, but it cannot recover input tax incurred on its expenses.

In addition to VAT registration, the educational institutions providing zero-rated and/or standard-rated goods and services are mandatorily required to issue tax invoices as well. If supplies are made to an unregistered recipient or made to a registered recipient but the value is less than AED10,000.0, then simplified tax invoices are enough. If the supplies are wholly zero-rated and you have the related evidence to prove this, then there is no need to issue the invoice.

For the VAT they pay to the FTA, these educational institutions can recover the input VAT in their tax returns, except for certain items that are blocked. Certain entertainment services and motor vehicles that are bought, rented, or leased and available for personal use are the VAT expenses for which you cannot claim refunds. The transportation services provided by educational institutions are exempt from VAT, but you can still recover a portion of input VAT associated with expenses related to these supplies.

Conclusion

Many uncertain scenarios or circumstances may come up that might change the VAT treatment. You and your staff must be aware of these common cases to ensure full VAT compliance. If you require any help in the understanding of any specific case or need assistance with VAT compliance, UAE VAT Consultancy is always there.

We have expertise and experience in handling VAT matters for UAE-based companies. A combination of knowledge of local laws and the practice of handling VAT for various businesses in different industries gives us an edge in these matters. We can help you with VAT registration and deregistration, returns filing, claiming refunds, and many more to make you fully compliant with VAT.