VAT Treatment of Exports and Imports in UAE

VAT Treatment of Exports and Imports in UAE

Trade is central to any country’s economy. It results in access to a greater variety of goods, efficient allocation of resources, rise in employment opportunities, and growth of mutual understanding between countries. Thus, it is a crucial activity to reduce poverty and spur economic growth for a country and across the world.  

UAE is not far behind in this case. As per the OEC (Observatory of Economic Complexity) data, UAE was ranked 24th among 225 nations in exports with a total of US$248.0 billion in 2019. For the same year, with imports of US$235.0 billion, UAE ranked at 22nd position. With these numbers, UAE has trade relations with many countries across the world.  

Similar to other financial transactions, VAT applies to export and import transactions as well. In this article, we shall look at the VAT treatment of exports and imports in the UAE: 

VAT On Exports 

VAT at 0% is applicable on exports in UAE. But, the treatment differs based on where the goods are exported and whether the recipient is registered or not.  

Exports to a non-GCC country or non-VAT implementing GCC country

If the export is to a non-GCC country or a GCC country that has not implemented VAT, exports can be: 

Direct: In the case of direct exports, the supplier or an agent appointed by him/her arranges the transportation of goods. The VAT rate is 0% if: 

  • Within 90 days of the date of supply, the exporter physically exports the goods or puts them into a customs suspension regime and 
  • The exporter retains the commercial and official evidence of the export or customs suspension regime 

Indirect: In indirect exports, the recipient outside UAE or an agent appointed by him/her manages the collection of goods from the exporter in UAE. The VAT rate is 0% if: 

  • Under an agreement between the supplier and recipient before the date of supply, the recipient arranges for the physical export of goods or placement in a customs suspension regime within 90 days of the supply 
  • The recipient must have the commercial and official evidence of the export or customs suspension and must provide a copy of the same to the supplier 
  • No one should alter or use the goods between the supply and export or customs suspension, except if the goods are being prepared for export 
  • A passenger or crew member of a ship or aircraft must not possess the exported goods while leaving UAE 
  • The recipient of exported goods must not be a resident of UAE, must not have a TRN of UAE, and must not have a fixed establishment or a place of establishment in the UAE 

Exports to VAT-implementing GCC countries 

There are three different scenarios in this case: 

  • Case 1: If the recipient is VAT-registered in its jurisdiction, then the export of goods is zero-rated supply for the exporter in UAE. But the recipient is supposed to pay VAT on the import of goods on a reverse charge basis.  
  • Case 2: If the recipient is not VAT-registered in its jurisdiction and if the value of exports from the supplier to the recipient is less than the mandatory registration threshold in the recipient’s jurisdiction, then the export is a taxable supply under VAT rules of UAE. The supplier will charge VAT at 5% on the exports to the recipient.  
  • Case 3: If the recipient is not VAT-registered in its jurisdiction and if the value of exports from the supplier to the recipient is more than the mandatory registration threshold in the recipient’s jurisdiction, then the supplier must get VAT-registered in the jurisdiction of the recipient. So, now the supply becomes local in the jurisdiction of the recipient and the supplier can impose VAT at 5% on it.  
VAT Treatment of Exports and Imports in UAE

VAT On Imports 

In the case of imports, the VAT treatment is dependent on whether the importers are registered or not. The VAT rate of imports is 5%, except for 0% VAT imposed on the import of precious stones and metals. In the case of imports, the FTA and Customs department work together because VAT payments and customs clearance work in parallel.  

The different scenarios are: 

For non-registered importers

Non-registered importers are required to pay the VAT before the goods are released to the recipient. They have to pay VAT at the time of import to release the goods.  

Case 1 

If these importers either do any of the following, then VAT treatment is different: 

  • Import goods into mainland UAE 
  • Import in UAE to export the imported goods to another country and it is not under customs duty suspension 
  • Import in UAE to export to another GCC country that has implemented VAT and it is not under customs duty suspension 

Non-registered importers importing goods from outside UAE must create an e-Services account. For this, you must sign up as a new user and verify your account.  

Prior to this, you must submit the relevant customs declaration form and provide the necessary details about the imported goods. The Customs department processes it, validates the details, and approves the declaration. Then it is submitted to FTA with pending tax payment status. Once you make the VAT payment on the e-Services account, then the goods are cleared by the Customs department.  

Case 2

If these importers transfer goods from one VAT designated zone to another VAT designated zone or if the goods are imported into UAE under duty suspension, then the VAT treatment is different.  

The importer must submit the customs declaration and provide necessary details about the imported goods. Then, you need to obtain an e-Guarantee (financial security) equal to the amount of VAT due from your bank. Alternatively, you can pay using a cash deposit via e-dirham.  

Then, you have to log in to the e-Services portal and submit the e-Guarantee number. Once the e-Guarantee is submitted successfully, the customs clearance process can be completed.

For registered importers 

VAT-registered importers can pay VAT at the time of filing tax returns. They have to account for VAT in the returns through a reverse charge mechanism.  

Case 1

If you are a VAT-registered importer and you import goods into mainland UAE or you import and then export them to another country, then VAT at 5% is applicable. You must file your tax returns and make the payment of VAT at that time.

Case 2

VAT is not applicable for the following cases: 

  • Importing returned goods into mainland UAE (these are exported goods that are returned by the recipient) 
  • Import of goods by the military and internal security force into mainland UAE 
  • Handover of items from one VAT designated zone to another VAT designated zone 
  • A traveler importing goods valuing not more than AED3,000.0 
  • Importing goods into a VAT designated zone 
  • Expat or a UAE national living abroad who is coming to UAE for the first time and importing used personal effects and household items 

Temporary export of goods that are re-imported back to UAE 

Sometimes suppliers export goods such as supplies for theatres, exhibitions, displays, auctions, or playgrounds. These are exported for temporary purposes. There is no supply of goods that is happening in this transaction because there is no transfer of ownership. So, this export transaction is considered out of the scope of VAT.  

But, the applicant must submit color photographs of these items to allow the customs official to verify them when they are re-imported. Also, the temporary export period must not exceed 365 days. That means, before the end of 365 days, these items must be re-imported into the country. The supplier need not record this transaction in their VAT returns. Since these are returned goods, they are exempt from import VAT as well.  

Necessary Guidelines for VAT On Exports and Imports 

The tax paid by the recipients of imported goods can file for input tax recovery. Even, exporters can recover input tax on supplies used to make exports.  

Exporters and importers must keep relevant proofs for each export and import transaction. Also, while filing tax returns, you need to include information on the value of the goods/services exported or imported. You must have a relevant proof for the date of sending goods to customers or receiving goods from the supplier.  

The exporter must keep a record of the following documents for at least five years: 

  • Customers’ details 
  • The destination where goods are being supplied 
  • Customers’ purchase orders 
  • Description of goods in detail 
  • Route taken for export of goods 
  • Sales invoices 
  • Value of goods 
  • Transportation method 
  • List of items packed 
  • Bank statements 
  • Invoices from haulers 
  • Consignment notes showing proof of receipt of goods at the destination 
  • Evidence of correspondence and communication between supplier and customer 

The importer must also keep relevant records for at least five years.  

Conclusion 

Import and export are important activities for any economy and many such transactions happen over a year. So, importers and exporters must be aware of these tax-related transactions, rates, and processes to ensure compliance with VAT regulations. These can also help you to benefit from VAT.  

At UAE VAT Consultancy, we can help you with VAT-specific clarifications and advisory services. We help you find out the right VAT rates for your exports and imports and the procedure to go about it. We can also help you with input tax recovery and filing VAT returns.  

We are a leading VAT consultancy provider in UAE that can help you become compliant with VAT laws. We assist our clients with VAT registration, deregistration, filing VAT returns, training, and many more. Our team of tax experts has experience in using their expertise to help clients in VAT-related processes.  

Your VAT compliance is just a call away

So, call our team and get compliant with VAT

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