VAT Classification for Schools & Nurseries
Understanding the nuances of Value Added Tax (VAT) can often be a challenging task, particularly when you are running a school or nursery where your daily activities are so far removed from accounting principles. But knowing how to properly classify purchases for VAT purposes is an important step in ensuring accuracy on your financial statements and helping to keep costs down. In this blog post, we’ll explore the different classifications used by schools and nurseries when submitting their VAT returns and find out how they impact your next filing.
VAT On Education: A Guide on How VAT Works In the Education Industry
VAT is a complicated topic, and VAT registration UAE can be even more difficult to understand. Schools and nurseries in the United Arab Emirates are required to pay VAT on their goods and services. To properly calculate VAT payments, they must first determine which VAT classification applies to their business.
Firstly, it’s important to understand that there are two types of VAT applicable in the UAE: standard rate (5%) and reduced rate (0%). The default rate is 5% but certain businesses may be eligible for the reduced 0% VAT rate. Schools and nurseries in the UAE are in the privileged position of being able to take advantage of the 0% VAT rate, as long as they meet certain criteria.
In order to be eligible for a reduced VAT rate, schools and nurseries need to register as an educational institution with their VAT Authority. This will require them to submit an application along with proof that they are operating legally in the UAE and providing educational services to students. Once approved, VAT registration is valid for two years; however, businesses can apply for renewal before its expiry date.
Schools and nurseries must also ensure that their VAT returns accurately reflect their activities during each tax period. Any income generated by the school or nursery must be declared, along with any VAT that was paid on the same services. VAT returns must also include all expenses incurred in the course of providing educational services including staff and administrative costs, school fees paid by students, and VAT due on goods or services purchased for use in the business.
It’s important to note that each VAT classification carries a different rate so it is essential for schools and nurseries to calculate their VAT correctly before submitting their return. It is also important to declare which VAT classification applies to your business as this will impact the amount of tax you need to pay. Ultimately, understanding how VAT works within the education industry can be daunting but with some research and help from professional advisors can be made simpler.
Types of rates that can apply to an education business
When VAT was introduced in the UAE, businesses that provide educational services were required to register for VAT. Depending on the type of education business you operate and the goods or services you offer, there may be different VAT rates that apply.
Zero-rated
VAT applies to education services in the UAE. This means VAT is not payable on tuition fees, and VAT registered schools are required to charge VAT at 0% when selling educational services.
Educational services that qualify for zero rated VAT include tuition fees, textbooks, school meals, exams and boarding fees. However, VAT may be applicable to other goods and services such as after-school activities or uniform purchases.
organization must register for VAT if their annual supplies of taxable goods and services exceed the mandatory registration threshold – currently set at AED 375000. Once registered, organization must account for VAT collected on sales (outputs) and reclaim VAT paid on purchases (inputs).
organization can also opt to voluntarily register for VAT if their annual supplies are below the VAT registration threshold. In this case, VAT would need to be charged at 0% on sales of educational services and accounted for as output VAT. VAT paid on purchases could be reclaimed as input VAT provided they meet certain qualifying criteria.
Knowing the right VAT rate to charge is key in managing your VAT obligations effectively. When it comes to educational services, understanding when zero-rated VAT applies is essential in ensuring you remain compliant with UAE VAT regulations. By understanding the types of rates that can apply to an education business, you’ll be better equipped to understand your own VAT liability and ensure you are paying or collecting the correct amount of tax from customers.
Zero-rated VAT applies to goods and services related to basic education provided by a recognized school or institution – such as tuition fees for students up to grade 12, textbooks, uniforms, and other necessary supplies. The UAE government has also extended this rate to goods and services related to higher levels of education including universities.
Reduced-rate
In certain cases, VAT may be charged at a reduced rate of 5% on the supply of educational services. This includes the sale of goods or services related to education such as teaching aids, school uniforms and after-school activities.
Organizations that are registered for VAT must charge VAT at 5% when making these types of sales, and reclaim VAT paid on related purchases as input VAT.
Reduced-rate VAT applies in certain circumstances when providing vocational courses, international curricula, and special needs education – such as language courses, music lessons, and sports instruction. In these cases, VAT will be charged at a rate of 5%.
