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UAE VAT Fundamentals/Module 13: Financial Services & Insurance
8 min

Financial Services — Exempt vs Zero-Rated

VAT treatment of financial services: most are exempt, but certain margin-based and cross-border services are zero-rated.

Financial Services VAT Treatment

General Rule: Exempt

Most financial services are exempt from VAT. This means:

  • No VAT is charged to the customer.
  • The financial institution cannot recover input tax on related expenses.

Exempt Financial Services

Exempt financial services include:

  • Interest on loans and deposits
  • Life insurance
  • Credit cards (certain fees)
  • Foreign exchange margin
  • Islamic finance products (certain types)

Zero-Rated Financial Services

Certain financial services are zero-rated (0% — no VAT charged, but input tax is recoverable):

  • Supply of life insurance (where the policy is with a person outside the GCC)
  • Supply of financial services to a person outside the GCC implementing states (with conditions)
  • Supply of qualifying investment management services

Margin-Based Services

For margin-based financial services (e.g., foreign exchange, securities trading), the VAT treatment depends on the margin:

  • The spread/margin is the taxable amount.
  • If the service is supplied to a person outside the GCC, it may be zero-rated.
  • If supplied within the UAE, it is exempt.

Impact on Financial Institutions

Banks and financial institutions are typically partial exemption businesses:

  • They make both taxable (fees, zero-rated cross-border) and exempt (interest, domestic financial) supplies.
  • Input tax must be apportioned based on the ratio of taxable to total supplies.
  • This results in significant unrecoverable input tax.

Insurance

Life insurance is generally exempt. General insurance (property, motor, liability) is standard-rated at 5%. See the next lesson for details.

Practical UAE example

**Dubai Bank**: A bank earns interest on loans (exempt), charges account fees (standard-rated at 5%), and provides foreign exchange services to a UK client (zero-rated). The bank is a partial exemption business — input tax on shared costs (IT, rent, salaries) is apportioned based on the ratio of taxable supplies (fees + zero-rated FX) to total supplies (including exempt interest). If taxable supplies are 30% of total, only 30% of shared input tax is recoverable.

Key takeaways

  • Most financial services are exempt — no VAT, no input tax recovery.
  • Certain cross-border and margin-based services are zero-rated.
  • Banks are typically partial exemption businesses with apportionment.
  • Life insurance is exempt; general insurance is standard-rated.

Authoritative sources

Federal Decree-Law No. 8 of 2017 on Value Added Tax

United Arab Emirates — Federal Tax Authority · The VAT Law — Articles 1 to 82 (as amended by Federal Decree-Law No. 18 of 2022)

Effective: 1 Jan 2018Verified: 5 Oct 2026View source

Cabinet Decision No. 52 of 2017 on the Executive Regulations of the Federal Decree-Law No. 8 of 2017 on VAT

United Arab Emirates — Cabinet / Federal Tax Authority · Executive Regulations (as amended by Cabinet Decisions No. 46/2020, 24/2021, 88/2021, 99/2022, 100/2024, and 100/2025)

Effective: 1 Jan 2018Verified: 5 Oct 2026View source

FTA — VAT Guides, References & Public Clarifications

UAE Federal Tax Authority · Taxable person guides, tax invoice guides, input tax guides, designated zones, real estate

Effective: 1 Jan 2018Verified: 5 Oct 2026View source
Knowledge check

1. What is the VAT treatment of interest on a bank loan?

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This lesson is general educational content, not individualized tax or legal advice. Always consult a qualified professional for your specific situation.