Education VAT – The Fine Print
The United Arab Emirates and Saudi Arabia have long been attractive markets for young professionals seeking the best quality of life with minimum taxation. However, as they say, all good things must come to an end.
The introduction of VAT directly impacts the cost of living for expatriates and locals alike. In fact, one of the most discussed topics is the impact of VAT on the education sector.
Parents, employees and educational institutions face the same questions and concerns across the region. Does VAT apply to school uniforms, stationery, electronic equipment, school trips or tuition services? Does VAT apply in the same way to primary and secondary education? What is the difference between zero-rated and exempt services?
Given the complex nature of VAT and education, how can we best prepare ourselves? The first step would be to understand the basics.
Parents across the UAE drew a sigh of relief when it was announced that Education will be zero-rated. Simply put, this means that private and public school education alongside related goods and services provided would not be subject to taxation. However, private higher education will be subject to 5% VAT.
The base laws differ vastly to those implemented by the Government of Saudi Arabia. Unlike the UAE, the supply of private educational services will be subject to VAT at 5% in Saudi Arabia while public education services will be outside the scope of VAT.
It is easy to make the mistake of assuming that if no tax is applicable then the tax is exempt. That is why it is important to note that there are three different types of zero-rated taxes; Zero-Rated, Exempt and Out of Scope, and they all differ based on how much tax you can recover. These categories are placed on the industry as a whole, therefore for the Education sector, being zero-rated rather than exempt from VAT allows the institution to recover 100% of the tax on their purchases.
However, as each state has the right to zero-rate items as they see fit, so different rules may apply to ancillary educational services in individual GCC countries. Whilst goods and services directly related to educational services provided by an educational institution will also be zero rated, the UAE has provided a list of goods and services that will not benefit from the zero rated treatment. However, there still remains some “grey areas” as is expected with any new legislation.
The various terminologies associated with VAT may also be confusing. However, taking a well-informed approach will undoubtedly help institutions and individuals fully prepare their businesses and finances in this new era of taxation in the GCC.