Higher Education Institutions Making Zero-Rated and Standard-Rated Supplies Eligible for VAT Input Tax Recovery

The Federal Tax Authority, FTA, has confirmed that higher education institutions making only zero-rated and/or standard-rated supplies may recover input tax in full, except where recovery is specifically blocked. Blocked input tax includes VAT incurred on certain entertainment services, and motor vehicles that have been purchased, leased, or rented and made available for personal use.

The FTA noted that higher education institutions providing exempt supplies are eligible to recover only a portion of the input tax incurred.

This new issue of the FTA’s Basic Tax Information Bulletin focuses on the tax treatment for the higher education sector in respect of universities and higher education institutions recognised by the competent federal or local government entity regulating the higher education sector where the course is delivered. These higher education institutions may zero-rate educational services supplied in accordance with a curriculum recognised by the competent federal or local government entity, provided the institution is either owned by the federal or local government or receives more than 50% of its annual funding directly from the federal or local government (“qualifying institution”). The bulletin noted that the supply of printed and digital reading material related to an approved curriculum shall be subject to the zero-rate if the supplier is a qualifying institution.

The bulletin also noted that the transportation of students from home to the location of the higher education institution, and vice versa, is exempt from tax and that services supplied to persons who are not enrolled in the higher education institution are subject to 5% VAT. The supply of electronic devices, food and beverages, field trips that are not directly related to the curriculum, and other supplies, are also subject to 5% VAT.

The bulletin added that higher education institutions providing zero-rated and standard-rated supplies are required to register for VAT if the value of these taxable supplies and imports exceeded the mandatory registration threshold of AED 375,000 during the last 12 months, or is expected to exceed this threshold within the next 30 days. These institutions are, therefore, required to issue tax invoices.

The bulletin is made available through the FTA website and, in an effort to reach the largest number of recipients, the FTA will also distribute it via traditional media and social media platforms. It provides detailed examples of a number of tax treatments related to the higher education sector.

The FTA has launched the Basic Tax Information Bulletin as part of its information campaign for 2020 as it seeks to continue raising awareness about taxes and providing taxpayers with periodic and detailed tax information.

The bulletin aims to provide clear tax information for every sector to which businesses can refer and easily understand where there are concepts or practices related to tax laws, executive regulations, and procedures that they may find ambiguous.