Zero-Rating Goods and Services in Connection with Means of Transport

The Federal Decree-Law No. 8 of 2017 on Value Added Tax (VAT) in the UAE has undergone significant clarifications and updates, particularly with the introduction of Cabinet Decision No. 100 of 2024. This recent decision specifically addresses the zero-rating of goods and services related to means of transport, as outlined in Article 35. Understanding the nuances of this decision is crucial for businesses involved in the transportation sector and those providing goods and services linked to transport operations.

Overview of Zero-Rating Provisions

Zero-rating under VAT means that goods and services are taxed at a rate of 0%. This provision is beneficial for businesses as it allows them to reclaim VAT incurred on inputs, effectively reducing their tax burden. According to Article 35 of Cabinet Decision No. 100 of 2024, specific goods and services that are integral to the operation, repair, maintenance, or conversion of means of transport can qualify for zero-rating.

Goods Eligible for Zero-Rating

1.Goods Supplied or Imported During Operation and Maintenance:

1. Goods that are not fuel or oil products and are supplied or imported while operating, repairing, maintaining, or converting means of transport are eligible for zero-rating if:

• They are incorporated into or affixed to the means of transport.
• They are consumable goods that become unusable as a direct result of their use during these processes.

2.Examples of Eligible Goods:

1. Spare parts that are permanently installed in a vehicle.
2. Consumables like lubricants or cleaning agents that are used during maintenance and cannot be reused.

Services Eligible for Zero-Rating 

The decision also outlines specific services that can benefit from zero-rating:

1.Repair and Maintenance Services:

1. Services provided directly in connection with the means of transport, such as:

• Repairs carried out on board.
• Maintenance activities, including inspection, testing, cleaning, and repainting.

2.Conversion Services:

1. Services that modify means of transport, provided that they continue to meet the criteria set forth in Article 34 of the decision post-conversion.

3.Repair and Maintenance of Parts and Equipment:

1. Services directly related to parts and equipment of means of transport qualify for zero-rating if:

• They are performed on board.
• Parts are removed for maintenance and replaced in the same means of transport.
• Parts are held as spares for future use.
• Parts that cannot be repaired are exchanged for identical replacements.

Implications for Businesses

The introduction of Cabinet Decision No. 100 of 2024 emphasizes the UAE’s commitment to fostering a robust transport sector by easing the VAT burden on businesses involved in this industry. By allowing zero-rating for specific goods and services, the government encourages investment in transportation, ultimately enhancing the overall efficiency and competitiveness of the sector.

Businesses must ensure compliance with the provisions set forth in this decision to take full advantage of the zero-rating benefit. Proper documentation and a thorough understanding of which goods and services qualify will be essential for reclaiming VAT on inputs and ensuring adherence to tax regulations.

Conclusion

Cabinet Decision No. 100 of 2024 marks a significant step in the evolution of VAT regulations concerning the transport sector in the UAE. By delineating the specific goods and services that qualify for zero-rating, it provides clarity and fosters an environment conducive to growth and innovation. Companies involved in the transport sector should familiarize themselves with these provisions to optimize their operations and financial strategies effectively.

Disclaimer:  The Content offers 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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