The FTA imposes Value-Added Tax, or VAT, on taxable individuals for supply and importation of vendible. The goods provided in designated zones qualify as outside the scope of UAE’s VAT, unless their consumption is the reason behind delivery. In cases where the goods are supplied for consumption, these commodities may be levied upon twice, i.e. on their transfer and on their import.
To prevent this double taxation, FTA issued an amendment to its original law and a VAT Clarification on Goods. An amendment of Cabinet Decision No. 88 of 2021 was issued to The Article 51 of Cabinet Decision No. 52 of 2017 on Executive Regulation of the Federal Decree Law No. 8 of 2017 on Value Added Tax. The modification is in effect from 30th October 2021. The public clarification pertains to regulation on Article 51 (5) and (7).
General Discussion of VAT Clarification on Goods
All taxable sales or purchases made in the UAE are liable to VAT by taxable individuals. The Cabinet Decision has outlined certain requirements in Article 51 (1) of Executive Regulation to designate a zone as outside UAE. These specifications necessitate the area to be enclosed, and comprise customs and safety processes to monitor influx and exit of people and goods.
However, goods qualify as being within UAE if they are supplied in a nominated zone, and planned for use in our out of UAE. Nonetheless, if the purchaser resells the good and not use it directly, such a commodity is outside the UAE VAT range.
The VAT Clarification on Goods has outlined thorough conditions and terms for a place of goods supply to qualify as being outside of UAE. They are:
- If a certain commodity is merged, attached with, or becomes a part of manufacture of another good, and the produced commodity is not used within the designated zone
- The seller sells and delivers the product to a destination outside the UAE and has verified copies and proof of customs and other official and commercial documents and receipts.
- The commodity is moved somewhere within the UAE and the seller has proof of paying VAT on the good issued by the Customs Department.
These exceptions withhold legal and commercial intricacies, which is why suppliers must give thorough consideration to the matter before qualifying their good as being outside of UAT VAT. It is preferable that they do not treat their supplies as outside VAT scope unless they are sure that their product is completely in line with the above-mentioned conditions.
The VAT Clarification on Goods understands the procedures of product sale and import. It recognizes that goods are usually imported after they are sold. Thus, the supplier cannot present a proof of payment of good by the buyers in such a case. Therefore, the government eases the supplier and only demands proof that the product will be imported in the UAE, and then it will be considered to be outside the latitude of UAE’s VAT. However, the supplier is then responsible to import and then deliver the good to its buyer’s address in the UAE.
In addition, a seller registered with VAT must pay VAT on the supply of good, maintain its proof, and mention this sale in his annual VAT return filing. If this is not done properly, the good shall be considered within UAE VAT and will be subject to the 5% VAT charges as defined by the FTA.
Shipment and Delivery Under the VAT Clarification on Goods
As per the VAT Clarification on Goods, instances have been highlighted whereby the shipping and deliveries of goods are considered outside UAE VAT. This section refers to shipping and delivery of “qualifying goods” only.
The process of transportation and subsequent distribution of qualifying goods is outside the UAT VAT scope if it meets all of these criteria:
- The supplier of the good is the person who conducts the shipping and delivery. This means that the process of conveyance and distribution must not be carried out by another person or service.
- The supplier of the qualifying good is not a resident of UAE and is not registered for VAT
- The sale of good happens through an electronic sales platform
- The seller is not the owner of the electronic sales platform
The “electronic sales platform” refers to online platforms such as web apps, pages or websites where goods are sold or bought by third-party sellers or buyers.
This amendment tends to facilitate non-residents of UAE who can sell goods without having to register for VAT and pay 5% amount.
Summary
According to the VAT Clarification on Goods, there are certain conditions under which the sale of certain goods are free from the necessary VAT of 5%. Precisely, the qualifying characteristics of th goods and their sellers or suppliers are:
- The seller does not use the product directly
- The good is merged or included in production of another good, and the final product is used outside of UAE
- The good merged, and the final outcome, are directly linked
- The supplier has proof of having sold the good to a place outside the UAE
- The good is yet to be imported but the supplier has proof of its sale and holds responsibility of delivering it to an address in the UAE
- The person importing the good, and the person delivering it to the buyer are the same
- The seller is not a resident of UAE and not registered for VAT
- The seller works via online sales platforms such as websites and web apps etc.
About BS Auditing
BS Auditing of Accounts thoroughly understands all FTA VAT laws, their amendments, and their implications for buyers and sellers in the UAE. Our skilled professionals provide the best assistance in such matters and effectively guide businesspersons in categorizing their commodities as VAT-eligible or free from them. For detailed guidance and assistance, feel free to contact us:
• Office # 0641, Tamani Arts Offices, Business Bay, P.O. Box 111390, Dubai, UAE
• +971 4 570 7357
• +971 58 108 5690
