VAT treatment of crude oil, natural gas, and refined petroleum products at the first point of sale.
Oil and Gas VAT Treatment
Crude Oil and Refined Products: Zero-Rated at First Sale
The supply of crude oil and refined petroleum products is zero-rated at the first point of sale within the UAE:
The first supply of crude oil (from extraction to the first buyer) is zero-rated.
The first supply of refined products (from the refinery to the first buyer) is zero-rated.
The zero-rating applies to the first transaction only.
Subsequent Sales: Standard-Rated
After the first sale, subsequent sales of crude oil and refined products within the UAE are standard-rated at 5%:
A distributor buys crude oil from the producer (zero-rated) and sells to a refinery (standard-rated if within UAE).
A retailer buys refined products from a distributor (standard-rated) and sells to consumers (standard-rated).
Natural Gas
The supply of natural gas follows similar rules:
First supply within the UAE may be zero-rated.
Subsequent supplies are standard-rated at 5%.
Petrochemicals
Petrochemical products are generally standard-rated at 5% — they do not qualify for the zero-rating of crude oil and refined products.
Worked Example
ADNOC (Abu Dhabi National Oil Company) sells crude oil to a refinery. This first supply is zero-rated. The refinery processes the crude into refined products and sells to a distributor — this is standard-rated at 5% (it is not the first supply of crude oil). The distributor sells petrol to a petrol station — standard-rated at 5%. The petrol station sells to consumers — standard-rated at 5%.
Practical UAE example
**Abu Dhabi Oil Company**: An oil company extracts crude oil and sells it to a refinery for AED 10M. This first supply is zero-rated — no VAT charged, input tax recoverable. The refinery processes the crude into petrol and sells it to a distributor for AED 12M + 5% VAT = AED 12.6M. The distributor sells to petrol stations for AED 15M + 5% VAT = AED 15.75M. The petrol station sells to consumers, charging 5% VAT on retail prices.
Key takeaways
Crude oil and refined products are zero-rated at the first point of sale in the UAE.
Subsequent sales are standard-rated at 5%.
Natural gas follows similar rules to crude oil.
Petrochemicals are standard-rated at 5%.
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. When is the supply of crude oil zero-rated in the UAE?
This lesson is general educational content, not individualized tax or legal advice. Always consult a qualified professional for your specific situation.