Exempt supplies in the UAE include: transactions in bare land, local passenger transport services, and certain financial services (margin-based financial instruments, life insurance). Unlike zero-rated supplies, exempt supplies sit entirely outside the VAT system — no VAT is charged on sales, but no input VAT can be recovered on the costs that relate to those sales. If your business makes a mix of taxable and exempt supplies, partial exemption rules apply: you can only recover the proportion of input VAT that relates to taxable activities. This is a common complication for businesses in financial services and real estate.
See also: Zero-Rated Supply, Input VAT, Taxable Supply
