Understanding Zero-Rating the Export of Services Under VAT in the UAE

The introduction of Value Added Tax (VAT) in the UAE, through the Federal Decree-Law No. 8 of 2017, marked a significant shift in the country’s fiscal landscape. Since then, the VAT framework has evolved to accommodate the complexities of modern business operations. A notable development in this evolution is the recent Cabinet Decision No. 100 of 2024, which provides further clarity on the zero-rating of exported services. This decision, particularly Article 31, outlines the conditions under which services provided to non-residents can benefit from zero-rating, which can have a profound impact on businesses in the UAE.

Key Provisions of Article 31

Zero-Rating Conditions

Article 31 of Cabinet Decision No. 100 of 2024 introduces key criteria for services to be eligible for zero-rating. These criteria are designed to enhance the competitiveness of UAE-based service providers in the global market while maintaining clear guidelines for tax compliance.

1. Recipient Location
   For services to qualify for zero-rating, they must be provided to a recipient who does not reside in the UAE and is physically located outside the country during the performance of the services. This condition simplifies the compliance process for businesses dealing with international clients, allowing them to confidently provide services without VAT complications.
2. Nature of the Services
   The services must not be directly connected with real estate or movable assets located within the UAE at the time the services are performed. This provision is specifically designed to safeguard local real estate markets from international tax implications, ensuring that services related to UAE-based properties continue to be subject to standard VAT rates.
3. Performance Location
   To ensure clarity, services must not be considered as being performed within the UAE or in a designated zone as defined by Articles 30 and 31 of the Decree-Law. This ensures that local service provision does not inadvertently qualify for zero-rating, thus keeping VAT regulations intact for services performed within the UAE.

Actual Performance Criteria

Article 31 extends zero-rating to services that are genuinely performed outside of the UAE or involve arranging services carried out in other countries. This flexibility is beneficial for UAE businesses looking to expand globally while adhering to local VAT regulations.

Outbound Tour Packages

A key highlight of Article 31 is the recognition of outbound tour packages as services eligible for zero-rating. This clause acknowledges the UAE’s prominent position in the tourism sector and provides a competitive edge to local tour operators. Services such as the packaging of tourism products—including accommodation, meals, transportation, and activities—when provided outside the UAE, qualify for zero-rating. This provision aims to bolster the UAE’s role as a global tourism hub.

Definition of “Outside the State”

Article 31 also defines when a “Person” is considered “outside the State.” Notably, a person is deemed to have a presence in the UAE for less than 30 days, without having an effective connection to the supply, thus not incurring VAT. This is an important clarification for businesses to navigate the complexities of cross-border operations, ensuring that transient business activities are not unfairly taxed.

Exceptions to Zero-Rating

It is essential to recognize that not all services provided to non-resident recipients qualify for zero-rating. There are specific exceptions. For example, if the services are expected to be received within the UAE, or if the services involve another person—such as an employee or director of the non-resident recipient—who will utilize these services within the UAE, zero-rating will not apply. These exceptions ensure the integrity of the VAT system is maintained, while allowing for international business dealings.

Conclusion

The recent Cabinet Decision No. 100 of 2024 and its provisions on zero-rating exported services mark a significant step in refining the UAE’s VAT framework. By providing clear and concise criteria for zero-rating, this decision enhances the business environment and positions the UAE as a competitive player on the global stage.

Businesses in the UAE can now more easily engage in international trade, leveraging the provisions of zero-rating to expand their reach while ensuring compliance with local tax regulations. As VAT laws continue to evolve, staying informed about these developments is essential for businesses looking to thrive in the UAE’s dynamic and competitive economic environment.

summary

Cabinet Decision No. 100 of 2024 clarifies the zero-rating of exported services under the UAE’s VAT framework. Article 31 outlines key conditions for services to qualify for zero-rating, including the recipient’s location outside the UAE, the nature of the services (excluding those related to UAE-based real estate), and the service performance location. The decision also recognizes outbound tour packages as eligible for zero-rating, boosting the UAE’s tourism sector. Exceptions apply, such as when services are expected to be received in the UAE or involve a UAE-based individual. This decision enhances the competitiveness of UAE businesses globally while ensuring compliance with local tax regulations.

Disclaimer: The Content offer general guidance and should not be considered legal, financial, or tax advice. Consult qualified professionals for personalized guidance. While efforts have been made to ensure accuracy, no guarantee is provided for completeness or applicability to individual situations. Users are responsible for their interpretation and actions based on this information, at their own risk.

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