Understanding the Zero-Rating of Goods Export Under UAE VAT
The introduction of the Value Added Tax (VAT) in the UAE has been a significant step in aligning the region with global tax standards. However, for businesses engaged in international trade, navigating the intricacies of VAT regulations is crucial. Zero-rating refers to the taxation treatment where a supply of goods is taxed at a rate of 0%. While no VAT is charged on the sale, the supplier remains entitled to reclaim any input VAT incurred on the costs associated with that supply. For exporters, this provision offers significant financial benefits, enhancing cash flow and ensuring their competitiveness in global markets.
Conditions for Zero-Rating of Exports
The UAE VAT system differentiates between direct exports and indirect exports, each with specific conditions to qualify for zero-rating. To qualify for zero-rating, direct exports must meet the following requirements:
- Physical Exportation: The goods must be physically exported outside the Implementing States or placed into a customs suspension regime within 90 days from the date of supply.
- Retention of Evidence: Exporters must retain specific documentation to substantiate the export, including customs declarations and commercial evidence proving the export.
Indirect exports are also eligible for zero-rating, but they are subject to slightly different conditions:
- Arrangement for Export: Goods must be exported or placed under customs suspension within 90 days of the supply, based on a prior arrangement between the supplier and the overseas customer.
- Evidence Submission: The overseas customer or their agent must provide the supplier with necessary documents proving export.
- Condition of Goods: The goods must remain unaltered from the time of supply until export, except for minor preparations necessary for export.
- Prohibition on Passenger Transport: The goods must not leave the UAE in the possession of a passenger or crew member.
Defining Required Evidence for Zero-Rating
Understanding and maintaining specific documents is vital for exporters to remain compliant with UAE VAT regulations. The following table outlines the key evidence required to substantiate zero-rating:
| Type of Evidence | Description based on Regulations |
|---|---|
| Official Evidence | Includes export certificates and clearance certificates proving goods have left the state. |
| Commercial Evidence | Documents issued by transportation companies, such as waybills, confirming the transfer of goods. |
| Shipping Certificate | An alternative document that can serve as commercial evidence when standard documents are unavailable. |
FTA Clarifies UAE VAT Amendments in VATP040
The Federal Tax Authority (FTA) in the United Arab Emirates (UAE) has released its Value Added Tax (VAT) on Amendments to the VAT Executive Regulation which were effective from 15 November 2024. To provide further clarity, the FTA published Public Clarification VATP040 regarding these amendments. The updated regulations allow taxable persons exporting goods to retain any of the following documentation:
- Customs declarations and commercial evidence verifying export.
- Shipping certificates and official proof of export.
- For goods under customs suspension as per the GCC Common Customs Law, customs declarations confirming the suspension status.
Starting from 15 November 2024, additional official evidence forms will be accepted, including export certificates issued by local customs authorities, confirming the goods have departed the UAE, and clearance certificates from local customs or relevant UAE authorities. These documents must clearly display official stamps or seals and be either in Arabic or English.
Exclusions and Services Not Qualifying for Zero-Rating
It is essential to note that the movement of goods into Designated Zones or supplies to these areas does not qualify as an export. This clarification ensures that zero-rating applies solely to international transactions. Furthermore, recent changes to Article 31 of the Executive Regulation clarify when services provided to non-residents do not qualify for zero-rating under UAE VAT law. The following services supplied to a non-resident do not qualify for zero rating:
- Hospitality Services: Restaurant, hotel, and catering services at the location of service performance.
- Cultural and Educational Services: At the place where the services are performed.
- Real Estate: The supply of services that are directly connected with real estate located in the UAE.
- Telecommunications and Electronic Services: Where the services are enjoyed.
Consequences of Non-Compliance
Failure to meet the export documentation requirements within the 90-day timeframe can result in the export being subject to the standard VAT rate. This could have significant financial implications for exporters. However, the UAE VAT regulations grant the regulatory authority the discretion to extend the 90-day export deadline under specific circumstances, such as unforeseen delays in the export process. It is important to note that exports made before 15th November 2024 will still be subject to the previous documentary evidence requirements under Article 30.
