What are the VAT implications for Imports and Exports in the UAE? Could VAT open up revenue generating opportunities for the Logistics industry?
In the UAE, the logistics industry is quite a significant sector given that it is also an important regional hub for air and sea freight. This industry will continue to grow and develop as the UAE economy grows, along with Dubai continuing to be an important international hub supported by large players such as DP World, Emirates Airlines, and Aramex. However, the introduction of VAT will also add a layer of complexity to their business models and they must be first to market to be able to support their customers with this tax regulatory burden. This is because goods that are imported, re-exported, or exported to and from the UAE will need to go through additional processes for customs and VAT clearance.
These processes are expected to include additional documentation such as VAT certificates to clear goods from customs. Understanding and knowing the correct documentation is crucial for Logistics companies to continue to serve their clients. It must also be noted that VAT will be payable on top of any customs duties levied on imports. The logistics industry will also play a key part for companies who are importing and exporting goods from the UAE and many companies would prefer to outsource the burden of the VAT clearing process. A logistics company would serve its customers by registering as a VAT agent on its behalf, which would also be a revenue-generating activity. However, the main challenge will be for them to be well versed in the rules and regulations of VAT for the import and export processes. Some of these rules include understanding and applying the reverse charge rule and knowing the relevant tax rates on certain goods.
When assessing the VAT on imports and exports, the first concept to grasp will be identifying the place of supply. This is important because it will deem whether VAT is due on that transaction or not. According to the FTA, if the supply is treated as made outside the UAE, then no UAE VAT is due, however, if the supply is treated as made in the UAE, then VAT may be charged. The complication arises when goods are imported to the UAE and then transferred onwards to another GCC VAT implementing state. In this situation, it has been mentioned that VAT must be paid using the reverse charge mechanism and the input VAT would not be reclaimed in the UAE but recovered in the GCC state to which the goods were transferred. On the subject of the ability to recover the input tax, the conditions required include the following: the recipient must be a taxable person and must be VAT registered, VAT on the purchase must be correctly charged by the supplier, the goods should be acquired by an eligible person, the recipient must receive and retain a tax invoice evidencing the transaction and the VAT to be recovered must have been paid.
When assessing the type of supply provided by logistics companies for VAT, it should be noted that the international transport of goods is a zero-rated supply which means no VAT is charged on its service but input VAT can be recovered. These services include transport relating services for goods from a location in the UAE to a location outside the UAE, this transport would include the transport through the UAE and services supplied during the supply of transport services such as a handling fee. Finally, for exports outside the GCC VAT implementing states to be considered zero-rated, the following conditions must be met: if the goods are physically exported outside the GCC or kept in a customs suspension regime within three months of the date of supply and the supplier has kept proper official or commercial evidence of export; for indirect exports where the overseas customer arranges for the collection of the goods from the supplier in the UAE, who the sports the goods himself or via an agent.
If the goods are physically exported outside the GCC or kept in a customs suspension regime within three months of the date of supply by the overseas customer and the overseas customer has given proper official or commercial evidence of export to the supplier in the UAE without using or altering the goods between the time of supply and time of export and such goods are not transferred by a passenger or crew member of an aircraft or ship then such export will also be zero-rated.
There are many moving parts in the export and import process that logistics companies must understand and be able to apply. Those who are first to market with this expertise will find an additional source of revenue providing this service.
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This article has been written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon the particular circumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of its contents.