VAT Treatment for UAE Transportation

Generally, supplies of goods and services that take place within UAE for VAT purposes are subject to VAT with five percent as the standard rate or zero percent if considered zero-rated, unless they fall within the UAE scope of VAT section.

What is the VAT treatment for local transportation services in UAE?

The supplies of passenger transport services as well as goods, within UAE, either by air, land, or water are considered rated. They are only exempt or applied with the standard rate of 5 percent VAT if the suppliers are licensed or regulated by relevant bodies in UJAE.

For instance, a customer utilizes a third-party company for delivery or picking up food and delivering it. A charge is made onto the customer for the food delivery and it will at zero rates for the purpose of VAT.

Read also: Is VAT On Insurance Taxable?

What are the local transportation services that don’t qualify for zero-rating?

The following services don’t qualify for zero-rating for the purpose of VAT in the UAE:

  • The provision of rental vehicles without a driver;
  • The provision of drivers without vehicles;
  • A transportation service that is provided for leisure or sightseeing. The service can include a bus tour, limousine, or any similar that is provided with a professional driver in order to bring passengers on an agreed sightseeing trip, the transportation by boat either unscheduled or scheduled onto an island that caters to guests and tourists primarily, and a boat-restaurant;
  • Food-delivery services are provided by the same persons supplying food. This is due to the supply of goods, as well as transport services both being considered as one composite supply wherein supply of a good is the transaction’s main supply while transport service is ancillary to the main supply.
  • Transportation service that is ancillary to the main taxable supply at the standard rate for goods and services
  • Private transportation intended for the transport of a group of people while under contract. School buses, shuttle buses, and buses are used in transporting workers or staff members from their place of residence to the workplace. For shuttle buses, they are not qualified for zero-rating if they are used in transporting hotel guests from a hotel to any place in UAE including malls, parks, airports, museums, and all other tourist places. In such a case, the standard rating will apply.

What is the VAT treatment for public transportation in UAE?

Public transportation refers to any motor vehicle which is used in transporting goods and at least ten people and is made available to the general public without imposing restrictions for access to a certain group of people. Supply of means of public transportation is zero-rated if it meets all of the conditions for being recognized as public transportation, which is as follows:

  • The means of payment is through ticket issuance, card scanning, payment booth
  • Branding both within and outside UAE for the means of transportation indicates that vehicles are for public transportation and without any exclusivity to a certain group of individuals
  • Branding explains the affiliation of means of transport that is provided by the government body of a specific emirate
  • Means of transportation are qualified legally as being used as means of public transportation. This means they have passed all of the necessary tests and checks set by local authorities of the concerned emirate prior to being approved for utilization of UAE residents and tourists
  • Means of transport allows any third party in placing advertising materials within or outside the means of public transportation themselves

Read also: Difference Between Zero-Rated And VAT-Exempt

 What is the VAT treatment for UAE international transport?

International transportation services for goods and passengers are taxable but are considered zero-rated. This is applicable if the place of supplies for international transportation services were being supplied with the use of qualified means of transport. For services with a place of supply that is outside UAE, it will be outside UAE VAT scope. International transportation services are provided in a way that’s other than qualified means of transportation that are taxable at a five percent standard rate.

Executive Regulations on UAE VAT issued by the local government had set a list of supplies that are either directly or indirectly being associated with supplies of international transportation for goods and passengers. The supplies include seat allocations, food and beverages, luggage check-in, priority boarding, seat upgrades, overweight or additional luggage charges, and provision of entertainment and internet connection onboard in which a separate VAT charge for a supply of transportation service has been made for any of the aforementioned supplies.

VAT that is paid on costs that are related to means of transport for providing international transportation services can be recovered in full with the normal submissions of VAT reports or regular VAT return filing in UAE.

If you want further clarifications, speak with regulated tax agents in Dubai from VAT Registration UAE today!