When the UAE implemented VAT in 2018, the tax rate for export supplies is determined as zero rates. In the first view, it looks simple and easy to implement as the VAT rate is fixed as zero-rated. However, the tax registrants or businesses need to satisfy the conditions for zero-rating an export. We may have to say that there are certain concerns that a taxable person may face in satisfying the zero-rating conditions for charging VAT on exports.
One major reason for this is the pre-existing practices in the industries and the gap between the requirements as per the UAE VAT Law. We can understand these zero-rating conditions as per the UAE VAT Law and certain struggles that businesses face in satisfying them.
Under the UAE VAT Law (Article 45 of Federal Decree-Law No. 8 of 2017 on Value Added Tax), any direct or indirect export of goods from the UAE or other GCC implementing states to outside the states will be treated as export at zero-rated, subject to meeting the conditions specified in the executive regulation of the UAE VAT Law.
Before we understand the conditions, we must be aware of the differences between direct and indirect exports. In the UAE, the export of the goods may be done directly by the supplier or by his export agent who will be sending the goods from the UAE to an overseas customer or location, and such exports are considered direct export. Alternatively, for an indirect export, an overseas customer may collect the goods from the UAE supplier and arrange the export of the goods to an outside location.
So, if a supplier located in Dubai is selling goods to a customer in India and the supplier exports directly to India from Dubai, it will be a direct export. At the same time, if the customer in India collects the goods from the UAE and exports it to India under his responsibility, it will be treated as an indirect export.
The conditions for zero-rating the export of goods are provided in Article 30 of the Executive Regulation of the Federal Decree-Law No. 8 of 2017 on Value Added Tax. According to the provisions, an export sale can be zero-rated only if the goods are physically moved outside the UAE within 90 days of the supply and the supplier/seller should retain both the official and commercial evidence for the export.
In addition to these conditions, for an indirect export, the supplier must ensure that the goods are not altered or modified before being exported and should obtain both official and commercial documents for export from the overseas customer.
The official evidence of export as per the UAE VAT Law is the export of a document issued by the customs department proving the actual export. It is important to understand that it should be a document issued by the customs authority with a stamp-like exit certificate and not just the export declaration document prepared by the exporter or his clearing agent. Commercial evidence will be the documents issued by the transporter or shipping or airline company to prove that the goods are moved out through them like an Airway bill, Bill of lading, Consignment note, and certificate of shipment. So, if all the documents are obtained and retained showing the evidence that the goods are exported within 90 days of supply, then it shall be zero-rated for UAE VAT Law.
Mr. Pradeep Sai
+971 – 556530001
Mr. Vinay. E. R
+971 54 378 4414
+971 – 508873115