Understanding VAT Treatment for Charities in the UAE

VAT, or Value Added Tax, was introduced in the UAE in 2018 and is currently charged at a rate of 5% on most goods and services. While charities are traditionally associated with non-profit activities, their operations in the UAE are not automatically exempt from VAT. When charities engage in business activities—such as selling goods or services for a fee, they may be required to register for VAT, charge VAT on taxable supplies, and adhere to standard compliance obligations, including filing VAT returns and maintaining proper records.

For charities in the UAE, it’s very important to understand how VAT works. Not following the rules can lead to penalties or financial issues. On the other hand, knowing the right VAT treatment can help charities make the most of their funds—such as through VAT refunds or tax-free supplies.

So, let’s understands VAT on charities in the UAE in a simple and clear way.

VAT on Charities in the UAE

Under UAE VAT law, a charity is defined as a “society or association of public welfare not aiming to make a profit that is listed within a Cabinet Decision issued at the suggestion of the Minister.”

This means that for an organization to be recognized as a charity for VAT purposes, it must:

• Be established for public welfare and not for profit.
• Be officially listed in a Cabinet Decision, as recommended by the Minister.

Only organizations meeting these criteria are eligible for specific VAT treatments applicable to charities.

Difference Between a Registered Charity and a Non-Profit Organization

While both registered charities and non-profit organizations (NPOs) operate without the primary goal of making profits, there are key distinctions in the context of UAE VAT:

• Registered Charity: An organization that is officially recognized by the UAE government, listed in a Cabinet Decision, and meets specific criteria set by the FTA. Such charities may be eligible for certain VAT exemptions or zero-rated supplies.
• Non-Profit Organization (NPO): An entity that operates on a non-profit basis but may not be officially recognized as a charity under UAE VAT law. NPOs are subject to standard VAT rules and do not automatically qualify for the special VAT treatments afforded to registered charities.

It’s essential to note that not all NPOs are considered charities for VAT purposes. Only those officially designated by the government receive the associated VAT benefits.

Conditions to Qualify as a Designated Charity Under the FTA

To be recognized as a designated charity by the Federal Tax Authority (FTA) and benefit from specific VAT treatments, an organization must meet the following conditions:

Official Approval:

The organization must be:

• Approved by the Ministry of Community Development to carry out charitable activities in the UAE.
• Established as a charity under a Federal or Emirate Decree.
• Licensed to operate as a designated charity by an authorized agency of the Federal or Emirate Governments.

Non-Profit Operation:

The charity must operate strictly on a not-for-profit basis.

Funding Sources:

The primary funding should come from grants or donations, rather than commercial activities.

Compliance with Authorizations:

The charity must operate within the terms of any approval, license, or authorization granted by the relevant authorities concerning its charitable activities.

Meeting these conditions ensures that the charity can access VAT benefits such as zero-rated supplies and input tax recovery.

VAT Registration for Charities in UAE

Charities in the UAE are required to register for VAT if they engage in business activities, such as selling goods or services, that result in taxable supplies. The need to register depends on the value of these supplies:

• Mandatory Registration: If a charity’s taxable supplies and imports exceed AED 375,000 over the previous 12 months or are expected to exceed this amount in the next 30 days, registration is compulsory.
• Voluntary Registration: If the value of taxable supplies and imports (or taxable expenses) is more than AED 187,500 but does not exceed AED 375,000, the charity may choose to register voluntarily.

Voluntary registration can be beneficial for charities that incur significant VAT on expenses and wish to reclaim input tax.

Step-by-Step VAT Registration Process with the FTA

To register for VAT, charities should follow these steps:

1. Create an e-Services Account

Visit the FTA e-Services portal and sign up for an account.

2. Log In and Access the VAT Registration Form

After logging in, navigate to the VAT section and select “Register.”

3. Complete the Registration Form

Provide accurate details about the charity, including:

• Legal name and trade name.
• Contact information.
• Business activities.

Financial details, such as turnover and expected taxable supplies.

4. Upload Required Documents

Attach necessary documents, which may include:

• Trade license or equivalent.
• Passport and Emirates ID copies of the authorized signatory.
• Proof of business address.
• Financial statements or records.

5. Submit the Application

Review all information and submit the application.

6. Await Approval and Receive TRN

The FTA will review the application and, upon approval, issue a Tax Registration Number (TRN). This process typically takes up to 20 business days.

Once registered, the charity must comply with VAT obligations, including charging VAT on taxable supplies, filing periodic VAT returns, and maintaining proper records.

VAT Implications for Charitable Activities in UAE

UAE VAT treatment of charitable activities hinges on whether a benefit is received in return for the transaction. Here’s a breakdown of how VAT on charities applies to various scenarios:

Free-of-Charge Charitable Activities:

When a charity provides goods or services without any charge, these are generally considered non-business activities and fall outside the scope of VAT. As there is no consideration received, VAT is not applicable. However, charities cannot reclaim input VAT on expenses related to these free supplies

Donated Goods and Services:

Charities often receive donated goods and services to support their activities. If these are used in charitable activities without any charge, they remain outside the scope of VAT. However, if the charity sells these donated items or charges for services, VAT becomes applicable on those supplies. Since the charity did not incur VAT on the donated items, there’s no input VAT to recover.

Fundraising Events:

Fundraising events where attendees are charged (e.g., ticket sales, auctions) are considered taxable supplies. Therefore, VAT at the standard rate applies to the amounts charged. Charities must account for VAT on these revenues and can reclaim input VAT on related expenses, such as venue hire or catering.

Government Grants or Donations:

Grants or donations provided without any benefit to the grantor are outside the scope of VAT. If the grantor receives any benefit in return, such as research findings or promotional services, the grant is considered a taxable supply and is subject to VAT.

The fundamental principle is that VAT applies when there is a supply of goods or services in exchange for consideration. Each scenario must be evaluated on a case-by-case basis to determine whether a benefit is received in return for the transaction.

Input VAT Recovery for Charities in the UAE

Input VAT refers to the Value Added Tax that charities pay on goods and services purchased for their operations. Under certain conditions, charities can reclaim this tax, effectively reducing their overall expenses.

To be eligible for input VAT recovery, charities must meet the following criteria:

• Use for Taxable Activities: The goods or services must be used for activities that are subject to VAT. If the expenses relate to exempt or non-business activities, input VAT cannot be reclaimed.
• Valid Tax Invoice: A proper tax invoice must be obtained for the purchase.
• Intention to Pay: There should be a clear intention to pay the supplier within six months from the agreed payment date.

Special Considerations for Designated Charities:

Charities recognized as “Designated Charities” by the UAE government may benefit from more favourable VAT recovery rules. However, they must still adhere to specific guidelines and ensure that input VAT is not claimed on expenses related to exempt supplies.

Zero-Rated Supplies for Charities

Zero-rated supplies are taxable at a 0% VAT rate, allowing charities to reclaim input VAT on related expenses. Key zero-rated supplies include:

Educational Services:

• Nursery, pre-school, and school education provided by recognized institutions.
• Higher education offered by government-owned or at least 50% government-funded institutions.
• Related goods and services, such as course materials and school trips.

Healthcare Services:

• Preventive and basic healthcare services provided by licensed medical professionals.
• Medicines and medical equipment approved by the Ministry of Health and Prevention.

Buildings Designed for Charitable Use:

• First sale or lease of buildings specifically constructed for charitable purposes.

International Transportation:

• Transport of goods and passengers across international borders.

Charity VAT Exemptions Supplies

Exempt supplies are not subject to VAT, and charities cannot reclaim input VAT on expenses related to these supplies. Common exempt supplies include:

• Residential Property Rentals: Leasing of residential properties.
• Certain Financial Services: Services such as life insurance and specific banking operations.
• Local Passenger Transport: Transportation services within the UAE, including buses and taxis.

How Shuraa Tax Can Help

Understanding how VAT works for charities in the UAE is important to stay on the right side of the law and make use of the tax benefits available. From knowing when to register for VAT to handling donations, fundraising, and claiming back input VAT, there’s a lot that charities need to be aware of.

That’s where Shuraa Tax can help. We offer simple and reliable VAT support that’s specially designed for charities and non-profit organizations. Whether you need help with VAT registration, staying compliant, or recovering input tax, our experts are here to make things easier. We also provide a full range of tax services in Dubai, including corporate tax registration, VAT filing, bookkeeping, and more.

Reach out to Shuraa Tax today and let us take care of your tax matters.