Is export of goods treated as zero rated supply under UAE VAT?

Is the export of goods treated as a zero-rated supply?

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.

When export can be zero-rated?

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.

What are Direct and Indirect Exports?

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.

What are the conditions for Zero-rating an 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.

Official and Commercial Evidence

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.

To bring more understanding of the taxability, we can consider some existing industry practices for export and how tax rates are determined on them. 
  1. An example is a company in Dubai that exports 200,000 AED/- worth of goods to its customers in Africa by sea. The company obtains and retains the customs export declaration and the Bill of lading from its clearing agent. Can the company consider the export as zero-rated? Under the UAE VAT Law, the company must retain both official and commercial evidence of export to consider the transaction as a zero rating for VAT. In this case, even though the company has a customs export declaration and bill of lading, we cannot consider that the official evidence criteria are met. As per the guidelines given by FTA, the company should retain the document issued by the customs authority confirming the export like an exit certificate for consideration as valid official evidence. Hence, in this case, the transaction cannot be zero-rated due to a lack of official evidence and should charge VAT at the standard rate (5%). So, the company should remit VAT of AED 10,000/- to the FTA.
  2. A company in the UAE is exporting the goods to its customers in Africa or the MENA region through logistic agents who will consolidate goods from different sellers and ship them together. The logistic agent is preparing the official and commercial documents in consolidated value of all goods and not providing separate documents to the company (seller). In such cases, the company can not consider the export as zero-rating as per the UAE VAT Law and will be subject to 5% VAT as both official and commercial documents are missing.
  3. Indirect Export: let us take the example of a client who comes from the UK to the UAE buys the goods and then exports them to Europe. The customer collects the goods from the premises of the seller and exports them using his agent. In this transaction, the seller can consider the sale as an export and charge 0% VAT only if he obtains and retains both official and commercial evidence of the export. it is also important that the goods are not altered or modified after the sale is made before exporting it. 
  4. Exporting using the support of freight forwarders or logistic companies or courier companies like Aramex, FedEx, etc: Sometimes a business may export the goods using the help of courier companies like Aramex, FedEx, etc., and may not obtain official evidence for the export. If the companies cannot obtain the export documents, they should consider the transaction as standard rated.  
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