The United Arab Emirates [UAE] plays a major role in international trades especially to connect the movement of goods through its ports. We know many businesses in UAE have a huge volume of Imports and Exports. Hence, UAE businesses need to understand and follow correct tax treatments for exports.
This may be a basic thought for many taxpayers in the UAE. Many times, tax registrants consider that the export of goods is always zero-rated or maybe they are advised like that. But what is the fact, is export taxable in the UAE, or what is the tax rate for export of goods?
Firstly, it is important to understand, what is the export of goods as per the UAE VAT Law. As per the definition, supply or transfer of goods from the country to outside the implementing states (currently considered the UAE) either directly by the seller through his logistic facility or his agent or if moved by the overseas customer by himself or using his agent. It is important that the goods must be moved outside the UAE within 90 days of the transaction to consider as export.
So, if the goods are sold to an overseas customer and not moved outside the UAE, then they will not be treated as an export for the UAE VAT purpose. In such a case, it should be considered as a domestic or local supply and may be taxed at a standard rate. At the same time, if the goods are handed to the overseas customer within the UAE but are taken out of the country by the overseas customer using his logistics team or agent, then this transaction will be considered as indirect export and can still be eligible for zero-rated.
According to the UAE VAT Law, the export of goods shall be taxable at zero rates provided the transaction satisfies the conditions mentioned in the executive regulation of the VAT Law.
The above conditions should be met even if the goods are exported by the overseas customer as indirect export. It is also important that goods sold should not be altered or used between the supply and export.
Here we should understand that even if the goods are sold to an overseas customer and are moved outside the UAE, they will not be considered as export if one of the evidence documents is missing.
If a company in Dubai sold goods to its customer in the UK and the goods are moved to the UK using a logistics company. Assume that the company has received only the customs document like export declaration and exit certificate and not the shipping document for that transaction.
In that case, the transaction cannot be considered as taxable at zero-rated and will have to be taxed at the standard rate.
Another possible transaction where goods exported may be standard rated is in indirect exports. Consider a customer from Africa procure goods from a trader in Sharjah and informed that the goods are for export outside the UAE. Goods were collected from the warehouse and are shipped by an overseas customer. Even though the goods are exported from the UAE, they can be zero-rated for VAT only if the customer provides both official and commercial evidence for the export.
So, if the trader does not receive any of these documents, the transaction will be taxable at a standard rate.
While considering exports, documentation plays a significant part in determining the tax treatment. We already discussed the need for official and commercial documents for zero-rating the export of goods. Also, evidence should be obtained from the Customs Departments for the check to confirm the type and quantity of the exported goods with its export documents. But practically there are many difficulties faced by the taxable person in receiving or arranging such evidence.
There are cases wherein the customs exit certificate is not received or logistic company may have to prepare document together for multiple transactions, which result in the absence of appropriate documentary evidence. We can also see transactions where evidence for customs checks is not obtained during export by the exporter or transport company or agent.
In such cases, the export cannot be zero-rated as per the VAT Law and must charge VAT at the standard rate.
Businesses in the UAE should consider the requirements mentioned as per the VAT Law to ensure the correct tax treatment for the Export of Goods.
It is advised to charge VAT at the standard rate for export, if supporting evidence is not available then continuing the noncompliance in the tax treatment.
For Tax Services in Dubai:
Mr. Pradeep Sai
For Tax Services in Abu Dhabi:
For Tax Services in Northern Emirate (Sharjah, Ajman, RAK, Fujairah)