Impact of VAT on Imports and Exports 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.

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

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.

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.

2 Replies to “Impact of VAT on Imports and Exports in UAE”

  1. Hi
    1.Our company import Flavour from India and sell part of it with some other additives to KSA at zero rate (to a vat registered customer) and local market (uae). If we do reverse charge mechanism, can we claim the entire input vat on flavour import in the VAT return?.
    2. Can we claim input VAT on medical Insurance premium paid for employees and their dependents?. We have Tax invoice in our company name?

  2. Hi Victor,

    As per the scenario, reverse charge apply on goods which you have imported from other country and these goods or services are vat-able if you buy in UAE. In your case you have to pay VAT on imports through reverse charge and claim back the same VAT amount as input VAT. Let say your imports amounting 10,000 the output VAT will be 500 and same to record as input VAT claim. So the effect of VAT in reverse charge procedure is 0.
    Yes you can claim back VAT on medical insurance, as medical insurance is standard rated also this is an allowable expense to set off against your companies profit.
    I hope your query has been resolved.

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