VAT on Supply of Education Services in the UAE
The Federal Tax Authority (FTA) mandates that the main educational services and the goods and services associated with it will be zero-rated if it is supplied by the ‘qualifying educational institutions.
The following institutes come under the qualifying educational institute category as per the FTA,
- Nurseries, preschools, and schools recognized by the competent federal or local government
- Higher educational institutions owned or funded by Federal or local Government means it received more than 50% funding directly from the federal or the local government.
- The curriculum of the school should be the ‘Recognized Curriculum’ approved by the local or Federal Government.
- Supply of Goods or Services made where the supply is directly related to the provision of a zero-rated educational service.
- Printing and digital reading material which is relating to the curriculum.
Supplies Related to Education that are Standard Rated
- Goods and Services Supplied to persons who are not enrolled in the educational institution
- Any Goods, except the educational materials, that are consumed by the students in the qualifying institutions.
- Uniforms or any other clothing required to be worn by the educational institution.
- Electronic devices whether it is supplied as part of the supply of education service.
- Food and beverages supplied at the educational institution
- Field trips which are not related to the curriculum
- Extracurricular activities conducted by or at the institution for a fee
- Membership in a student organization.
All the above-listed transactions will be taxable at a standard rate as they do not have any direct connection with the educational services.
For example: A private college, LMN Engineering College, is registered under VAT. Since this college is not a qualifying educational institution, the course fees charged by LMN Engineering College will be subject to VAT @ 5%. Also, the books and reading material provided by XYZ Engineering College will also be subject to VAT @5%.
For example: XYZ school in UAE is registered under VAT. As it is a school, it is a qualifying educational institution. Hence, XYZ school will not charge VAT on the tuition fees charged to students. Also, books provided as part of the course will also not be subject to VAT.
The educational services provided by any institution other than the qualifying educational institutions will be subject to VAT @ 5%
Does a ‘Qualifying Educational Institution’ Need to Register for VAT in the UAE?
Yes, all educational institutions undertaking either zero-rated or standard-rated supplies in UAE are required to get registered for UAE VAT. Therefore, an educational institution has to register for VAT if its supplies exceed the Mandatory Registration Threshold of AED 375,000. If the school doesn’t provide any services or goods taxed at the standard rate of 5%, then it can apply for an exception from registration. This means the schools are relieved from regular returns but it cannot also recover the input tax incurred on its expenses.
Are Educational Institutions entitled to recover Input Tax on their expenses?
Educational institutions will be entitled to recover the input VAT on taxable expenses incurred while undertaking taxable supplies. However, VAT incurred on costs that are linked to exempt transportation services made by the education institute is not recoverable.
VAT on Student Accommodation
The FTA considers the student accommodation within the definition of residential accommodation and therefore it is exempt from VAT. The schools that supply accommodation to students will not be able to recover VAT incurred on costs related to accommodation.
VAT Treatment on School Transportation
As per the recent clarification from FTA, services of transporting students from home to the location of the educational institution and vice versa are exempt from UAE VAT Law.
VAT on Grant Income or Sponsorship Received
The VAT treatment on the grant income or sponsorship received by the schools from Government or third parties is dependent upon certain specific conditions. If the grant is received without offering any benefit in return, then the fund received will be considered outside the scope of VAT. On the contrary, the schools have to account for VAT on the funding received if the donor is getting any benefit out of it.
Grant-Funded Research Subject to VAT
Higher education institutions often receive funding for researches and the VAT treatment on such grants is also dependent upon the benefits received by the people who fund the research. Standard VAT rating will apply to the grant income if the educational institute provides any deliverables, intellectual property, or any other products of the research to the funder. However, if the funder is receiving research-related information such as progress updates, records of expenses, etc. then it won’t be considered as supply of services and the grant income will be considered outside the scope of VAT.