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

The implementation of the Value Added Tax (VAT) in the UAE has introduced various regulations that businesses must navigate carefully. Among these regulations, Cabinet Decision No. 100 of 2024 regarding Article 30, which outlines the zero-rating of goods export, stands out for its implications on international trade for businesses operating in the region. This article explores the key aspects of zero-rating exports as stipulated in the Executive Regulation of the Federal Decree-Law No. 8 of 2017 on VAT.

What is Zero-Rating?

Zero-rating refers to the tax treatmentwhere a supply of goods is taxed at a rate of 0%. This means that while the supplier does not charge VAT on the sale, they can still reclaim any input VAT incurred on the costs associated with that supply. For exporters, this provides significant cash flow advantages, allowing them to remain competitive in international markets.

Direct Export Conditions

For direct exports to qualify for zero-rating, the following conditions must be met:

1. Physical Exportation: The goods must be physically exported to a location outside the Implementing States or placed into a customs suspension regime within 90 days from the date of supply.
2. Retention of Evidence: The exporter must retain specific documentation, which can include:
   • A customs declaration and commercial evidence proving the export.
   • A shipping certificate along with official evidence validating the export.
   • A customs declaration demonstrating the suspension arrangement for customs duties if the goods enter a customs suspension regime.

These requirements ensure that exporters have verifiable proof of their transactions, safeguarding against potential tax liabilities.

Indirect Export Conditions

Indirect exports are also eligible for zero-rating but are subject to slightly different conditions:

1. Arrangement for Export: Similar to direct exports, the goods must be exported or placed under customs suspension within 90 days of supply, based on a prior arrangement between the supplier and the overseas customer.
2. Evidence Submission: The overseas customer or their agent must provide the supplier with copies of the necessary documents proving export, which can include customs declarations or shipping certificates.
3. Condition of Goods: Goods must remain unaltered from the time of supply until export, except for minor preparations necessary for export.
4. Prohibition on Passenger Transport: The goods must not leave the UAE in the possession of a passenger or crew member.

This framework ensures compliance and reduces the risk of misuse of the zero-rating provision.

Exclusions from Export Definition

It is important to note that movements of goods into Designated Zones or supplies to these areas do not constitute an export. This clarification helps delineate the scope of zero-rating to actual international transactions, thus preventing ambiguities.

Definition of Required Evidence

To substantiate a zero-rated export, the following definitions are crucial:

• Official Evidence: Includes export certificates and clearance certificates verifying that goods have left the state.
• Commercial Evidence: Refers to documents issued by transportation companies, such as waybills, confirming the transfer of goods.
• Shipping Certificate: An alternative document that serves as commercial evidence when standard documents are unavailable.

This definition ensures that exporters understand the documentation they need to prepare and retain for compliance.

Authority’s Role and Conditions for Extension

The regulatory authority possesses the discretion to extend the 90-day timeframe for export under specific circumstances, such as unforeseen events hindering the export process. This flexibility acknowledges that businesses may face challenges outside their control and seeks to alleviate potential burdens on exporters.

Consequences of Non-Compliance

If the requisite export documentation is not completed within the stipulated timeframe, the export will be subject to the applicable VAT rate, which can significantly impact the financials of the exporting entity. Additionally, goods destroyed under circumstances beyond the control of the supplier and recipient may still qualify for zero-rating, providing a safety net for businesses.

Conclusion

Understanding the nuances of zero-rating under the UAE VAT system is critical for businesses engaged in export activities. The conditions set forth in Cabinet Decision No. 100 of 2024 provide clarity while encouraging compliance. By ensuring the correct documentation is maintained and conditions are met, businesses can leverage zero-rating to enhance their competitiveness in global markets. As the VAT landscape continues to evolve, staying informed and compliant is paramount for all exporters operating within the UAE.

summary

Cabinet Decision No. 100 of 2024 outlines the conditions for zero-rating the export of goods under the UAE’s Value Added Tax (VAT) system. For direct exports to qualify, goods must be physically exported or placed in a customs suspension regime within 90 days of supply, supported by appropriate documentation such as customs declarations and shipping certificates. Indirect exports follow similar rules but require prior arrangements between the supplier and the overseas customer. Movements to Designated Zones are not considered exports. The regulatory authority can extend the 90-day period in exceptional circumstances, while failure to meet these conditions may result in VAT charges. Understanding these regulations is crucial for exporters to ensure compliance and benefit from zero-rating advantages.

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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