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This official VAT guide clarifies the UAE VAT treatment for the financial services sector. It explains the distinction between standard-rated services, which are subject to VAT when an explicit fee is charged, and exempt financial services, which are remunerated via an implicit margin or spread. The document provides detailed examples from banking, Islamic finance, and investment services, referencing definitions in Article 46 of Federal Decree-Law No. 8 of 2017 and Article 42 of its Executive Regulations. It also outlines principles for input tax recovery and apportionment methods for businesses with mixed supplies.

Financial Services

VAT Guide | VATGFS1

July 2019

1. Financial Services – Guidance Note

1.1. Overview
1. 1.1.1. Short brief
2. 1.1.2. Purpose of this document
3. 1.1.3. Who should read this document?
1.2. Status of the document

2. Financial Services

2.1. Financial services
1. 2.1.1. What are financial services?
2.2. Financial services – the VAT Law
1. 2.2.1. What are financial services as defined by the Law?

3. VAT

3.1. What is a taxable supply?
1. 3.1.1. Standard rate
2. 3.1.2. Zero rate
3.2. What is an exempt supply?
3.3. Multiple supplies versus single composite supplies
1. 3.3.1. Multiple supplies
2. 3.3.2. Single composite supplies

4. Financial services and VAT

4.1. The VAT treatment of financial services in the UAE
1. 4.1.1. General principle
2. 4.1.2. Standard-rated services
3. 4.1.3. Banking Examples
4. 4.1.4. Zero-rated services – investment grade precious metals
5. 4.1.5. Exemption
6. 4.1.6. Exported services
7. 4.1.7. Imported Services
8. 4.1.8. Recovery of input tax
4.2. Islamic finance – VAT treatment
1. 4.2.1. Principles
2. 4.2.2. Example
3. 4.2.3. Non-equivalent products
4.3. Other financial services – VAT treatment
1. 4.3.1. Returns on investment
2. 4.3.2. Equity securities and debt securities
3. 4.3.3. Portfolio management
4. 4.3.4. Trustee services
5. 4.3.5. Pensions and collective investments
6. 4.3.6. Stock lending
7. 4.3.7. Interest Rate Swaps
8. 4.3.8. Currency Swaps
9. 4.3.9. Other Derivatives
10. 4.3.10. Intermediation services
11. 4.3.11. Preparatory services
12. 4.3.12. Debt recovery and litigation
13. 4.3.13. Leasing
14. 4.3.14. Hire purchase, credit sales agreements, etc.

5. Input tax apportionment methods

5.1. General approach for all methods
1. 5.1.1. Fair and reasonable test
2. 5.1.2. Step 1: Direct attribution
3. 5.1.3. Step 2a: Standard method - attribution of residual input tax
4. 5.1.4. Step 2b: Special method - attribution of residual input tax

Appendix A

Retail and Private banking
Asset Management and Private banking
Equities trading
Transaction banking
Institutional banking
Corporate Finance/Investment banking
Treasury and Financial Markets
Islamic finance

Financial Services – Guidance Note

Overview

Short brief

VAT was introduced with effect from 1 January 2018 in the UAE. As a general consumption tax on the supply of goods and services, its effects must be understood by providers of financial services in the UAE, in two contexts:

Its application to the activities of all financial services providers; and
The approach financial services providers in the UAE should take to determine the amount of VAT on costs (i.e. input tax) they are eligible to reclaim where they make both taxable and exempt financial services.

Important : This document does not discuss insurance. This is covered in a separate Guide VATGIN1.

Contents

Financial Services – Guidance Note

Overview

Short brief