How is VAT Applicable for Educational Services in the UAE?
The VAT on Educational Services in the UAE is applicable where the education services are provided not in accordance with the recognized curriculum by unrecognized institutions. Quality education is the primary requirement for the growth and development of any nation. Considering the relevance of education, most of the tax laws across the world provide relaxation to education-related services. The UAE VAT Law has also been providing relaxation to the supply of educational services and related goods and services.
This article discusses in detail the taxability of the supply of education services and related goods and services in the light of VAT in UAE.
VAT on Educational Services in the UAE:
Clause (13) of Article 45 of the Federal Law No.8 of 2017 on Value-added Tax read with Article 40 of its Executive Regulation provides that:
- The supply of educational services by a government recognized educational institution up to high school level (i.e. nurseries, preschool, and high school) shall be taxed at zero percentage if it is provided in accordance with the curriculum recognized by the government.
- The supply of higher education services shall be subject to zero rates only if the institutions providing educational services are either owned by the government or receives more than 50% of its annual funding directly from the government.
Here the government means “the Federal government or local competent government entity regulating the education sector where the course is delivered”.
In the UAE at the Federal level, the education sector is regulated by the Ministry of Education (MoE) . At local level, Emirate wise authorities are responsible for regulating the education sector in their respective emirate for example; Department of Education and Knowledge in Abu Dhabi Emirate, Dubai Education Council (DEC) & Knowledge and Human Development Authority (KHDA) in Dubai Emirate etc.
It is to be noted that, unlike in the Tax laws of other countries the term “education services” has not been defined in the UAE VAT Law. Instead of that, the law has provided two conditions for educational services to be eligible for zero-rated taxability i.e.
1. The education services should be provided by a recognized Educational institution; and
- The course should be recognized by the government.
If these two conditions are not satisfied, then such supply shall not be considered as an educational service eligible for zero rate VAT under Article 45(13) of the Federal Decree-law No. 8 of 2017 and shall be taxed at the standard rate.
Is tuition fee taxable at Zero Percentage?
Tuition fees received by recognized educational institutions from students for providing courses that are recognized by the government are taxable at Zero Percentage.
What kind of education services are taxable in the UAE?
The education services provided not in accordance with the recognized curriculum by unrecognized institutions are taxable in UAE. Let us see a few illustrations for more clarity.
- Soft skill development Training Courses such as IELTS, Leadership development courses provided by institutions are taxed at the standard rate.
- Training courses provided by professional firms such as audit firms, software vendors to the employees of their clients are taxable at the standard rates.
What is the Taxability of the supply of Goods and Services in direct relation to zero-rated education services?
A supply of Goods or Services made by recognized educational institutions shall be zero-rated where the supply is directly related to the provision of a zero-rated educational service
While providing the education services, the recognized educational institutions are supplying goods and services to students such as the supply of study materials namely textbooks, guides, notebooks; other supplies such as the provision of lab facilities, stationaries, uniforms, canteen facilities, etc.
Even if the supply of educational services is zero-rated, there might be standard rated supplies made by the recognized education institutions where such supplies do not have any direct relation with the zero-rated educational services.
Article 40(4) of the Cabinet Decision No 52 of 2017 on Executive Regulations of the Federal Law No.8 of 2017 on Value-added Tax specifically discuss the taxability of the following incomes:
- Is the Supply of goods and services to non-students taxable?
Goods and services supplied to persons who are not enrolled in the educational institution shall be taxed at Standard Rate.
- Is the Supply of goods other than educational materials taxable?
The supply of any goods other than educational materials is taxable at the standard rate. Examples include copy books, notebooks, stationeries, yearbooks, etc.
- Is the Supply of uniforms or any other clothing taxable?
Supply of uniforms or any other clothing which are required to be worn by the educational institution, irrespective of whether supplied by the educational institutions as part of the supply of educational services or not, it will be taxable at the standard rate.
- Is the Supply of Electronic devices in the school taxable?
Supply of electronic devices such as calculators, Tabs, Laptops, etc. in relation to educational services, irrespective of whether supplied by the educational institution as part of the supply of educational services or not, it will be taxable at the standard rate.
- Is the Supply of food and beverages in the education institutions taxable?
Sometimes, the educational institution may have cafeterias inside the campus to serve Food and beverages to the students, teaching and non-teaching staffs. Such supplies of goods and services do not have any direct connection with the educational services and hence taxable standard rate.
- Are Field Trips in schools taxable?
Field trips that are not directly related to the curriculum of education service and are predominantly recreational are charges at standard rate.
- Are Extracurricular activities taxable?
Extracurricular activities provided by or through the recognized educational institutions for a fee added to the fee for the education service shall be taxable at the standard rate.
- Is Membership fees taxable in the UAE?
A supply of membership in a student organization is taxable.
Let us discuss the taxability of common revenues appearing in the books of accounts of a recognized educational institution:
- Sale of Textbooks:
The supply of textbooks prepared for the curriculum recognized by the government is are taxable at zero rate.
- Special Fees:
Educational institutions usually collect additional fees for providing special care to those students who require more attention such as inefficient students, disabled students, etc. The supply of such services should not be considered as zero-rated educational services therefore taxable at the standard rate.
- Admission fees:
Educational institutions usually charge admission fees from students to reserve their seats for the upcoming academic year. Such supply does not have any direct connection with the zero percentage educational services. Therefore, taxable at a standard rate.
- Other fees:
Other fees such as the amount collected for the preparation of Identity cards of the students, fees against the supply of art materials to students are taxable at the standard rate since such supply does not have any direct connection with the zero percentage educational services.
It is concluded that educational services provided in UAE by recognized educational institutions as per the curriculum recognized by the government are a Zero-rated taxable supply. However, the taxability of the goods and services supplied along with Zero-rated educational services is determined based on whether such supply has any direct relation with the supply of educational service. If it has a direct relation with the supply of Zero-rated educational services, then such supply of goods and services will also be taxed at zero rates otherwise it will be taxed at the standard rate.
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