VAT Impact on Education Sector
Education under VAT UAE can be defined services where such services are either exempt or zero rated is important because ultimately this will dictate the VAT treatment. To the extent that any services fall outside the definition of “education”, they will be subject to VAT at the standard rate. Any potential exclusion from the zero rated or exempt treatment must also be considered. The VAT treatment can vary depending on whether the education provider is engaged in pre-school, primary, secondary or higher education.
Under the VAT regulation, higher education institutes which are more than 50 per cent funded by the government, will not be charged VAT but the rest will be.
The UAE VAT law expresses that VAT appliesat the zero rate to the “supply of educational services and related Goods and Services for nurseries, preschool, elementary education, and higher educational institutions owned or funded by Federal or local Government, as specified in the Executive Regulation of this Decree-Law.” An intriguing perception is that there is no reference to secondary educationso unless the official directions bring it within the extent of the zero rate, the supply of education servicesidentified with auxiliary instruction will be liable to VAT at the standard rate.
As per KSA's VAT actualizing directions, supplies of education services are not excluded or zero rated. The other GCC nations have not yet made any declarations on the VAT treatment for the education sector.
Surandar Jesrani, partner and CEO, Morison MJS, said that the education services shall be taxable but at 0 % only if it is supplied by a recognized educational institution and offer recognized curriculum where Recognition should be given by the education ministry or competent government entity, he also added that "In case of higher education institutions, the institution should be either owned by the Federal or local Government or receives more than 50 % of its annual funding directly from the Federal or local Government.
He also stated that a supply of goods or services provide by educational institutions directly related to above shall be zero-rated.
A consequence of zero rated treatmentis that the educational provideris probably going to be in a VATrefund position,which may bring about cash issues. So it is critical for influenced organizations to oversee and audit their commercial contracts, invoices and VAT refund claims cases to decrease this effect.
However following services shall be taxable at 5 per cent even though provided by recognized educational institutions:
1. Goods & services supplied to persons who are not enrolled with the institute.
2. Any goods other than educational material provided which are not related to the curriculum of the educational institute.
3. Supply of School Uniforms as required by the educational institute.
4. Providing electronic devices irrespective of whether or not supplied as a part of educational services.
5. Foods & Beverages supplied at the educational institutions
6. Excursions or field trips unless directly related to the curriculum of the educational services.
7. Extracurricular activities provided by or through the educational institutions.
8. Membership of student organizations, associations or bodies.
‘Will the cost of education and tuition fees rise?’ There is often a misconception that when you are exempt from VAT, VAT will have no effect on your business (and prices). In fact it is the opposite and exempt businesses are the ones most affected. Early preparation is crucial and many of these issues may be resolved and the impact mitigated.