Understanding Zero-Rating on Export Services
Zero-rating on export services means businesses charge a zero VAT rate on services they export outside the UAE. If a business exports services, it does not pay output tax. A registered business can reclaim the input tax it paid on these services. Zero-rated goods and services are VAT taxable, but the rate is zero. This rule helps exporters compete in the global market.
Key Conditions for Zero-Rating on Export Services in UAE
Businesses must meet certain conditions to apply zero-rating. The UAE government explains these rules in Article 31 of the Executive Regulation on Value Added Tax. Let’s see the main requirements for zero-rating:
- The recipient of the service must not have a place of residence in the UAE.
- If the recipient has a place of establishment or a fixed establishment in the UAE, then it counts as being resident in the state.
- Place of establishment means where a business is set up and where top management makes decisions. This can include the company head office.
- Fixed establishment is a set place of business with enough people and technology to provide services. It can be a branch office in the UAE.
If the recipient has any kind of establishment in the UAE, the zero-rating does not apply. Businesses need to check each client’s situation carefully before applying zero VAT.
Multiple Establishments and Closest Relation
Sometimes, a recipient has more than one establishment. One may be in the UAE, and another may be outside. The law says suppliers should look at the establishment most closely related to the service. Suppliers need to:
- Analyze which office benefits from the service.
- Decide which office signed the contract.
- Check which office pays the invoice.
- See which office issues instructions to the supplier.
Suppliers must judge which establishment relates most closely to the exported service.
Presence of Recipient in the UAE
The recipient of the service must stay outside the UAE while the supplier provides the service. Some sub-conditions apply:
- The recipient cannot be in the UAE for more than 30 days.
- If the recipient is in the UAE, the visit must not relate to the service.
If these conditions are not met, the supplier should charge standard VAT, not zero VAT.
Connection to Real Estate and Movable Assets
The law also says that services must not connect directly with real estate in the UAE or with movable personal assets in the UAE. Services linked to property or personal assets in the UAE cannot get zero-rating.
Example to Understand Zero-Rating
Suppose ABC Co. is a UAE company. It gives tax advice to PQR Ltd., whose head office is in the UK, and PQR has a branch in the UAE. If ABC Co. deals only with the UK head office, sends invoices to the UK, and the UK office makes decisions and payments, then zero-rating applies. If ABC Co. deals with the UAE branch, then normal VAT applies.
Checklist Before Zero-Rating Export Services
Businesses should use this checklist:
- Does the recipient have a place of residence in the UAE?
- Does the service connect to real estate or personal assets in the UAE?
- Is the recipient present in the UAE, and for how long?
- Who benefits, pays, and gives instructions for the service?
- Are all required documents ready for inspection?
If the answer to any question is “yes” for UAE connection, then standard VAT applies.
Additional Notes for Suppliers
Suppliers sometimes get confused if the recipient has offices in and outside the UAE. In this case, suppliers should test which office is:
- Named in the contract.
- The main beneficiary.
- Making the payment.
- Giving directions.
All evidence must be reviewed. If any requirement is not met, standard VAT should be charged.
How Mubarak Al Ketbi (MAK) Auditing Can Help
Mubarak Al Ketbi (MAK) Auditing gives expert advice to businesses about zero-rating on export services. Our team does audits for clients and checks all documents. We help clients fulfill every VAT rule and avoid costly mistakes. Our main aim is to protect clients from risk. We also find weak spots in your process and help you improve. With our skilled professionals, clients feel safe in a fast-changing market. When push comes to shove, businesses can count on Mubarak Al Ketbi (MAK) Auditing for the best guidance!
- For more information, visit our office: Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
- Contact/WhatsApp: +971 50 276 2132
