VAT is a consumption tax applied on goods or services in the UAE. The standard VAT rate is applicable to transportation services in the UAE for all kinds of private transport. Whereas, public transportation services are exempt from VAT. This article assists Taxable Persons to understand VAT liability for transportation services in UAE, thus it is advisable to seek the services of VAT Registration UAE to effectively determine VAT liability in compliance with the statutory regulations.
Determining VAT liability for Transportation Services in UAE
Any provision of transportation services utilizing a particular vehicle is not subject to the same VAT treatment as the means of transportation itself at the time of purchase. As per Clause 2 of Article 45 of the VAT law, the international transit of people and goods that begin, end, or pass through the UAE is zero-rated. This means that any VAT paid on the cost of such transportation services is fully recoverable and is subject to normal input tax recovery systems.
Any supply of local passenger transportation shall be exempt from VAT where the supply is of local passenger transportation services by a qualifying means of transport by land, water, or air from one place in the UAE to another place in the UAE, according to Clause 4 of Article 46 of the VAT Law and Article 45 of the Executive Regulations.
Categories of VAT Liability for Transportation Services in UAE
- Transportation services for passengers: The transportation services for passengers by any mode of transportation, such as cabs, trains, ferries, or aircraft, are subject to VAT at the regular rate of 5% unless falling under certain exclusions or zero-rated categories.
- Zero-rated services and exemptions: For VAT reasons, several specified transportation-related services may be excluded or zero-rated. For instance, some services connected to the delivery of specific items, such as the international air delivery of diplomatic mail or the delivery of specific foods and medical supplies, may be zero-rated or exempt. The Federal Tax Authority (FTA) of the UAE or a tax expert should be consulted to ascertain the precise rules and requirements for exemptions or zero-rating.
- Transport services for goods: The transportation of goods by air, land, or sea is subject to the standard rate of VAT. But certain international transports may fall into the exempt category if they meet the specific conditions. These zero-rated services are generally applicable to the international transport of goods or if the transport of goods happens between the designated zones (free zones).
- Recovering VAT paid on business-related expenses through input tax credits is generally possible for companies that provide taxable transportation services, subject to the standard VAT recovery requirements.
For all VAT-related clarifications, businesses are advised to consult VAT experts in UAE.
Choose VAT Registration in UAE
VAT consultants at VAT Registration UAE are well-versed in all the latest rules and regulations laid down by the FTA for VAT treatment on transportation services in UAE. Therefore, it is advisable to seek the services of VAT Registration UAE to effectively determine VAT liability in compliance with the statutory regulations. So, contact us today and we shall be glad to assist you.