Effects of VAT on the Education Sector in the UAE
Education is one of the important and basic needs of every individual. Every nation's development and prosperity depend on the quality of education that it provides to its people. Realizing the importance of education for individuals, most countries provide education services and facilities at zero tax rates. If we talk about the education sector in the UAE, then it also provides relaxation regarding the application of VAT on the education services and concerning goods and services subject to certain conditions.
Application of VAT on the education sector in the UAE
As per the Federal law no.8 of 2017 Clause (13) of Article 45 on VAT with its Executive Regulation article 40, the following are the regulations regarding the application of the VAT in the education sector:
1. Education services supplied by educational institutions up to high school that is recognized by the government and provide educational services as per the government recognized curriculum will be charged VAT at Zero percent.
2. The education institutions providing higher education must be either owned by the government or funded more than 50 percent by the government to be eligible for zero percent of VAT.
As per the clause, the government referred to here may be the Federal government or the local government of the place where the educational institutions are based. Ministry of Education is the governing authority in the UAE which regulates the education sector at a federal level whereas Emirate wise authorities of respective Emirates regulate the education sector at the local level. To be specific the UAE VAT law doesn't explain or define the term education services like the laws of other countries, instead, it highlights two main parameters that must be met to charge VAT at zero percent on education services. These conditions are as follows:
1. If the educational services are provided by a recognized educational institution.
2. If the courses are recognized by the government.
When these conditions are not met then the educational services will be charged VAT at the standard rate and they won't be eligible for a zero rate of VAT. In more simplified words when the educational services are provided by the 'qualifying educational institution' (Nurseries, per-schools, high schools, higher educational institutions, etc.) it will charge VAT at zero rates.
Let's have a small gist of the application of VAT on the Educational sector including related goods services:
Goods and services which charged at 0%rate
Books and material provided whether printed or digital
Nursery and pre-school education
Goods and services which are exempted
Payment for School transportation
Student's accommodation expenses
Goods and services which are charged VAT at the standard rate of 5%
Fees for School uniforms
Fees for Electronic equipment
Expenses of food and beverages provided on campus
Payments for Recreational school trips
Fees for extra-curricular activities
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Some key points to be kept in mind regarding the application of VAT in the education sector:
1. The standard rate of VAT will be charged on the goods and services which is supplied to the individuals who are not enrolled in the educational institutions
2. The standard rate of VAT will be charged on the supply of goods that are excluded from educational materials like notebooks, stationaries, etc.
3. Uniforms or any other clothing which are to be worn in the educational institution are subject to the VAT at the standard rate.
4. The supply of Textbooks prepared as per the approved curriculum is taxable at zero rates.
5. Extra payments or fees paid for preparation of identity cards, supply of art tools or materials, etc. are taxable at the standard rate as it doesn't have any direct connection with the educational services which are charged at zero rates.
6. Membership fees collected from the students concerning any organization, clubs, etc. are to be charged VAT at the standard rate.
Let us understand the implication of VAT in educational services with the help of an example:
There is a school in UAE named EMINENT INTERNATIONAL which is registered under VAT, being a qualified educational institution, it won't charge VAT on the tuition fees, textbooks provided, transportation fees, etc. whereas the standard rate of VAT will be charged on the payment made for the uniforms and electronic equipment such as tablets or laptops, etc. On the other hand, there is another educational institution named INSPIRE INTERNATIONAL which is registered under VAT, it is a college and as not being a qualified educational institution, it will charge the standard rate of VAT on the educational and related goods and services.
From the example, we can get an idea about how VAT implies to the educational sector in UAE. In short, we can say that the application of VAT depends on the factors that if the educational institution is qualified or if the services provided are directly connected to the educational service provided.
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How can CDA help you?
CDA along with providing accounting and auditing services is also known for providing VAT-related services such as VAT registration and de registration, VAT filing, VAT compliance, etc. With the help of an experienced and professionalized team, CDA always ensures in providing the services under one rooftop to its clients in the most cost-effective and efficient manner. To get more detail contact us.