As of January 1, 2018, the UAE Value Added Tax (VAT) was applied to goods and services provided by companies outside of the UAE. This new tax law was set to impact both businesses and consumers in the Emirates, so it’s important to understand what VAT is and how was it decided to be applied. In this blog post, we’ll take a closer look at the new VAT law and explore some of the changes that businesses and consumers can expect.

Is VAT Applied to Export Services?

The UAE currently has a VAT of 5% applied to most goods and services. However, there are some exceptions, including export services.

This means that if you provide a service that is exported outside of the UAE, you will not have to pay VAT on that service. This can be a significant advantage for businesses that export services, as it can save them a considerable amount of money. There are a few conditions that must be met in order for a service to qualify for the VAT exemption, including the following:

• The service must be exported outside of the UAE.
• The customer must be located outside of the UAE.
• The service must be provided to a customer who is not registered for VAT in the UAE.

If all of these conditions are met, then the service will be exempt from VAT. This can be a big benefit for businesses that provide export services, as it can save them a significant amount of money. If you are thinking about starting or expanding your export business in the UAE, make sure to take advantage of this opportunity by ensuring that your services meet all of the requirements for the VAT exemption.

Read More : How To Claim VAT Refund For Exports In Dubai, UAE

Place of Supply Rules for Services in UAE

Under the UAE VAT law, the subject of the VAT treatment of services offered outside the UAE is subject to place of supply rules. The location of supply is the one that makes VAT chargeable at 5, 0 or unchargeable.

The location of supply of services is generally the location of the supplier however there are notable exceptions. In some situations, the customer may be outside the UAE but VAT may still be enforced.

Examples of cases when VAT can still be used:

• UAE real estate related services.
• Pysical services in the UAE.
• The services of the events in the UAE.
• Transportation services starting in the UAE
• Services consumed and experienced in UAE.

Thus, companies have to decide where the supply will be, and then they can decide whether to charge or zero-rate VAT.

Zero Rated and Exempt Services in UAE VAT.

One should know the distinction between the zero-rated services and exempt services in UAE VAT.

Zero-rated services:

• The rate of VAT is 0%.
• Input VAT can still be claimed by business.
• Export of services is normally zero-rated supplies.

Exempt services:

• No VAT is charged
• Input VAT is not claimable by business.
• This is in the case of healthcare, education and some financial services.

Export services are not an exception but generally zero-rated. It implies that export services can still allow businesses to recover input VAT.

Examples of VAT on Services Provided Outside UAE

Below are some practical examples to understand how VAT is applied on services provided outside UAE.

Documents Required to Prove Export of Services UAE

The businesses should keep good records to treat services as export services and to charge zero-rated VAT. These documents include:

• Agreement with overseas customer.
• Invoice to overseas client.
• Evidence of external UAE payment.
• Bank transfer records
• Service agreement
• Email communication
• Evidence of providing service outside UAE.
• Work completion documents

The Federal Tax Authority might disapprove zero-rated treatment without proper documentation.

How to Report Export Services in VAT Return UAE

Export services should be reported in the UAE VAT return despite the 0% rate of VAT.

Zero-rated supplies are reported in the VAT return under:

• Zero-rated supplies section
• Included in total taxable supplies
• It is still possible to claim input VAT.

To be in line with the UAE VAT law, businesses are required to make sure that their export services are well captured in the VAT returns.

Common VAT Mistakes for Export Services UAE

There are a lot of errors committed by means of application of VAT on the services offered outside the UAE. Common mistakes include:

• VAT exemption on the use of service in UAE.
• Failure to check place of supply.
• Failure to maintain export documents.
• Failure to report zero-rated supplies in VAT return.
• Reverse charge treatment error.
• Failure to register VAT where it is necessary.
• Exempt services need to be treated as zero-rated.

These mistakes may lead to VAT penalties and audits.

VAT Penalties for Incorrect VAT Treatment

When VAT is not imposed on export services appropriately, then the Federal Tax Authority can impose penalties to the business. Penalties may include:

• Administrative penalties
• VAT fines
• VAT audit
• Ineligibility of input VAT claims.
• Late payment penalties
• Faulty VAT returns fines.

Export service should be properly treated and documented with regard to VAT by businesses.

How VAT Applies to Services Provided Outside the UAE

The United Arab Emirates (UAE) has a value-added tax (VAT) system in place that applies to the majority of goods and services sold within the country. However, there are a few exceptions, one of which is services provided by businesses that are not established in the UAE. This includes businesses that are based outside the UAE but provide services to customers in the UAE. Given that many businesses operate internationally, it’s important to be aware of how VAT works on services provided outside the UAE.

Generally speaking, businesses that provide services to customers in the UAE are required to register for VAT and charge VAT on those services. The amount of VAT charged depends on the rate set by the UAE government, which is currently 5%. Businesses can recover any VAT they have paid on their inputs, such as office rent or business travel, by offsetting it against the VAT they have charged on their outputs. This process is called a ‘VAT refund‘.

However, there are a few exceptions to this rule. One exception is for businesses that are not established in the UAE but provide services to customers in the UAE. In this case, the customer is responsible for paying VAT on the service, rather than the business. The customer can then claim a VAT refund from the UAE authorities. Another exception is for businesses that are based in the UAE but provide services to customers outside the UAE. In this case, no VAT is payable either by the business or the customer.

As you can see, there are different rules for businesses depending on where they’re based and where their customers are located. It’s important to be aware of these rules if you’re operating a business that provides services internationally. By understanding how VAT works on services provided outside the UAE, you can ensure that you comply with all relevant regulations and avoid any penalties.

Read More: VAT Registration of Foreign and Local Company in UAE

Services Exempt from VAT in UAE

There are a number of services that are exempt from VAT in the United Arab Emirates. These include educational services, healthcare services, and certain financial services. Additionally, a number of exports are also exempt from VAT. Some of the other services that are exempt from VAT include the following:

• Transportation services
• Government services
• Services related to the construction of certain public infrastructure projects
• Services provided by religious organizations
• Services related to gambling and betting activities
• Services provided by charities and non-profit organizations

Overall, there is a wide range of services that are exempt from VAT in UAE. This provides considerable flexibility for businesses operating in the country and helps to create a level playing field for all businesses.

FAQs

Seek the Expert Services of Premier VAT Registration UAE 

The UAE government has clarified that services exported from the UAE to nations outside the GCC shall not be subject to VAT in UAE. This indicates that there is no tax on exports, and the supplier is therefore eligible to claim an input tax credit on the materials used to produce the exported service. For more details on VAT registration services in Dubai, contact an experienced VAT Registration UAE to guide your service business with a deeper knowledge of VAT registration in UAE.

Read More : VAT Treatment For UAE Transportation