VAT on Services Delivered Outside of the UAE
VAT on Services Delivered Outside of the UAE
The majority of companies have been charging a standard 5% on goods and services sold within the UAE since VAT (Value Added Tax) was implemented there in 2018. However, what happens if your company offers services to customers outside of the United Arab Emirates? Do you still have to charge VAT?
The solution isn’t always clear-cut. The “place of supply” is a crucial factor in determining whether or not your service is subject to UAE taxation. Your services may frequently be zero-rated (paid at 0% VAT) or entirely outside the VAT scope, meaning no VAT applies, if you’re working with clients who are not in the UAE.
How Does VAT Work in the United Arab Emirates?
Value Added Tax, or VAT, is a consumption tax that is imposed at every point in the supply chain, from manufacturing to retail. The ultimate cost is borne by the final consumer, even though businesses collect and pay it to the government.
On January 1, 2018, the UAE implemented VAT, with a standard rate of 5% on the majority of goods and services.
Nonetheless, some goods fit into unique categories:
Zero-rated (0%): Typically, exports, international shipping, and particular industries like healthcare and education
Financial services, the sale or leasing of residential real estate, bare land, and local passenger transportation are all exempt.
In contrast to an exempt supply, which prevents you from recovering input VAT, a zero-rated supply allows you to do so.
International vs. Domestic Service Provision
Services provided within the borders of the United Arab Emirates are subject to a 5% tax.
Depending on the “place of supply” regulations, international suppliers, such as services for clients outside the UAE, may be zero-rated or exempt from VAT.
You won’t charge VAT for zero-rated overseas services, but you can still recover input VAT on associated business expenses.
Comprehending the "Place of Supply" for Services
The nation where a service is deemed to have been provided for VAT purposes is known as the “place of supply.” This establishes if and how much VAT should be applied. The location of the provider determines the default rule in the United Arab Emirates.
Article 29 of Federal Decree-Law No. 8/2017 states that the supplier’s residence—that is, the location of your company—is often the place of supply for services.
Particular Guidelines: Article 30 Exemptions
Nevertheless, the default is superseded in a number of unique circumstances under Article 30:
B2B services to a business that is not registered for VAT in the United Arab Emirates: The recipient’s nation is the location of supply.
Services pertaining to products (like installation): The location of the service is the site of supply.
Transport leasing to a non-VAT lessee: The asset’s delivery location is known as the place of supply.
The company hotel, restaurant, or caterer is an example of a place of supply because it is where the service is really rendered.
Cultural, artistic, athletic, and educational services: The location of the event is the place of supply.
Real estate services: The location of the property is the place of supply.
Transport services: The journey begins at the place of supply.
Telecom and electronic services: The location where the service is utilized or appreciated is known as the place of supply.
You are required to charge 5% VAT if the supply location is within the United Arab Emirates. The service is zero-rated or out-of-scope and VAT is not charged if the supplier location is outside of the United Arab Emirates. By using the right rule, you can prevent missing claims, potential penalties, and needless VAT costs.
VAT on Services Offered Outside of the UAE
If your company offers services to customers outside of the United Arab Emirates, those services can fit into one of two categories:
Zero-rated (sometimes called 0% VAT): You are not required to charge VAT, but you are entitled to reimbursement for VAT paid on associated costs.
Out-of-scope: You cannot claim input VAT and these services are not included in VAT returns, thus they do not qualify as VAT supplies.
A. Services with No Rating
According to UAE VAT rules, zero-rated services are exports. Article 31 of the Executive Regulation states that the service cannot involve real estate or movable property located in the UAE and must be rendered to a client whose place of residence is outside the UAE (or, alternatively, conducted totally outside the UAE).
Additionally, even if the client resides in the United Arab Emirates, a service may be considered zero-rated if it is actually rendered abroad, provided that the recipient does not utilize the service within the UAE.
B. Services Outside of Scope
In the UAE, out-of-scope services are not included on VAT returns and are never subject to VAT. Among them are:
Services rendered by a company that is entirely located outside of the United Arab Emirates to clients who are also located outside of the country Electronic services rendered abroad in which the supplier and the recipient are non-UAE entities.
Essential Requirements for Zero-Rating Services
The following requirements must be fulfilled in order to apply 0% VAT on services rendered to clients outside of the United Arab Emirates:
1. The client needs to be outside of the UAE.
The client cannot have a head office or fixed establishment in the United Arab Emirates. If there are several establishments, the one most directly related to the service is taken into account. When the service is rendered, the client must be physically outside of the United Arab Emirates. This is unaffected by a brief visit (less than 30 days) unrelated to the service.
2. No Connection to UAE Products or Real Estate
The service cannot be directly related to UAE-based real estate or tangible items..
3. Absence of Business in the United Arab Emirates
The receiver cannot have an office, branch, or other service-related business setup in the United Arab Emirates.
4. Appropriate Records Are Needed
Documents such as these must be kept:
- Contracts indicating the recipient and the type of service
- the client’s business license or evidence of an address outside the United Arab Emirates
- Proof of the client’s location at the time the service was provided
Do You Need VAT Assistance? Allow IBR Group UAE to Help You
In conclusion, it’s critical to comprehend how VAT operates if you provide services to customers outside of the United Arab Emirates. You may avoid expensive errors by knowing when to apply 0% VAT, when it’s out of scope, and when ordinary VAT still applies. Make sure to routinely evaluate your VAT setup, client information, and service contracts.
Don’t worry if it seems unclear; IBR Group UAE is available to assist you. Our VAT specialists can assist you with the necessary paperwork, walk you through the regulations, and even manage your VAT returns. We simplify VAT so you may concentrate on managing your company.