The United Arab Emirates (UAE) has for long been the leader in exports among the six member states of the GCC union. Today its prime exports include electronics, precious metals, and stones, but the old Emirates first gained global recognition from its pearl exports. The UAE Pearls were exported to all nook and corners of the world and it was the prime basis for laying the foundation for today’s mega-trade cities like Dubai and Abu Dhabi.
Today, UAE is the 26th largest exporter of the world. It is also the 20th largest importer in the world with chief imports being gold, diamonds, jewellery, and cars. In 2017, the United Arab Emirates’ trade balance was estimated to amount to a surplus of 61 billion U.S. dollars. The UAE government does not levy income tax on its citizens which makes exports and imports along with tourism the major sources of revenue for the Emirates. The 5% VAT (value added tax) was introduced in 2018. In this blog, we try to understand how exports and imports are treated under VAT in UAE.
On January 1, 2018, the United Arab Emirates (UAE) and the Kingdom of Saudi Arabia (KSA) became the first two GCC countries to implement Value Added Tax (VAT). Oman, one of the neighboring GCC countries, was supposed to follow on the lines of its neighbors.
However, on Tuesday, Omani government postponed the rollout of VAT in the Sultanate to 2019. This prompted Oman’s Tax Authorities and experts to advice Local Omani businesses importing goods and services from the UAE/KSA to remain vigilant and well informed.
The move to not implement VAT this year has been welcomed in Oman, but concerns were raised about the trade complexities it may create with the two GCC neighbors. As per experts, VAT rules for goods are different from those for services. Omani companies carrying out businesses in the UAE or KSA will be liable to pay VAT tax to the authorities of the two countries.
Hence they must get registered for VAT purposes and charge VAT from their end customers. Also, Oman’s Service Sector companies need to assess and affirm if they need to charge VAT or not.
Table of Contents
- VAT on Exports in UAE
- VAT on Exports to GCC Countries
- Download PDF File VAT Importers
- VAT on Exports to other Countries
- VAT on Imports in UAE
- Mindful Business Owners
VAT on Exports in UAE
Goods and Services supplied from UAE to other countries for sale are considered as exports.
The recipient of the goods and services can be an individual or a firm/organization or other traders located in foreign lands.
Are Exports Taxable?
Now the Exports are considered as taxable supplies. basically, they are Zero-rated, It means tax at 0% is applicable to exports.
These scenarios can be divided as follows:
- Exports of goods outside a GCC VAT implementing state
- Exports of goods to unregistered recipients in a GCC VAT implementing state
- Export of goods to registered recipients in a GCC VAT implementing stated.
- Export of goods which require installation or assembly outside the state
Can input tax be recovered on exports?
Exports being taxable supplies, they are liable for input tax credit claims. ITC (Input Tax Credit) claims can be made on domestic supplies too. Hence exporters making supplies to domestic as well as foreign markets can reduce tax liabilities using Input Tax claims. Exporters can get all refunds on input tax.
Are records of exports required to be maintained?
Like any other tax regime, VAT in UAE also mandates the maintenance of export records. The records must be kept for a minimum period of 5 years beginning from the year mentioned in the invoice of a particular export.
For example, An Export Invoice dated 10th February ’18 must be retained till 31st December ’23.
VAT on Exports to GCC Countries
As per the VAT rules in UAE/KSA, exports to the remaining four GCC countries are zero-rated under VAT. Any supplies made to the remaining GCC countries by UAE/KSA will be treated as exports of goods and services and no VAT shall be levied on such supplies. Omani businesses need not pay VAT for these imports.
Download PDF File VAT Importers
VAT on Exports to other Countries
Exports made from UAE to any other country are zero-rated under VAT. These exports should be mentioned in tax returns, but no VAT is charged on them.
VAT on Imports in UAE
VAT is applicable on all kinds of imports of goods and services from any other country, including other GCC countries, to UAE. That means VAT registered UAE businesses that purchase products/services from abroad will have to pay a 5% VAT on these purchases. It means the vat rate on Import Export business will be 5%.
There may be different cases as explained below.
Case 1: If a UAE business owner is registered with the FTA and makes an import, the VAT shall be paid by him under the reverse charge mechanism. He can also claim input credit for the same.
Case 2: If a non-registered UAE business owner imports goods/services from outside the GCC, the VAT shall be levied on such import before the supply is released to the person. The tax can be paid either by the sender or the receiver after a mutual concern.
Case 3: If a GCC business imports goods from abroad and tranships them via UAE to any other GCC country, VAT is applicable on that import. The business will be able to recover input credit in the final destination GCC state.
Case 4: If goods are first imported to UAE with the ultimate purpose to export them to other GCC countries, the receiver has to pay import VAT to the UAE government via reverse charge. The input credit claimed on this tax will also be paid back to the UAE government.
VAT on Imports in UAE
Imports are goods and services brought within the UAE boundaries from abroad for sale. The total import value in 2016 stood at $246.9 billion (2016 est.) dominated primarily by Gold, Diamonds, Cars, Planes, Helicopters, and/or Spacecraft and Broadcasting Equipment.
What is a Reverse Charge?
Reverse Charge is a mechanism under VAT UAE that makes the recipient of goods and services liable for payment of taxes on supply. The supplier, in this case, is not registered under VAT or located outside UAE (as in the case of imports). The liable tax on supplies has to be paid to the Federal Tax Authority.
A common example in this regard would be of importers registered under VAT in UAE who are liable to pay tax on the imports made.
What is the VAT Rate on Imports?
In UAE, the all imports other than precious metals attract a single VAT rate of 5%. The 5% VAT Rate is applicable to domestic supplies too. This ensures that imports and domestic supplies are subjected to equivalent tax rates. Only, precious metals are zero-rated under VAT.
Is Input Tax paid on Imports Recoverable?
Yes, Input tax paid on imports is absolutely recoverable. Recipients of the supplies can claim input tax recovery.
Is Maintenance of Import Records Necessary?
Record of imports has to be maintained for a minimum period of 5 years. The 5 year period must start with the year mentioned in the invoices of the particular imports.
Businesses and Traders with Adequate knowledge of compliance under VAT will benefit in the long run. Especially those dealing in exports and imports as they command a major chunk of the economic activities in UAE. This will not only foster timely compliance but also help traders to reap the timely benefits of VAT in UAE.
Mindful Business Owners
AS per UAE/KSA VAT guidelines, exports to other GCC countries are zero-rated for VAT. Hence, business owners must be alert and well informed about this. Else, any confusion or inadvertent inclusion by the UAE/KSA firms could lead to a 5 percent increase in the prices of imported goods when VAT is implemented next year.