VAT ON IMPORTS & EXPORTS IN THE UAE
UAE has known to be one of the major exporting States amongst all countries in the GCC. The UAE’s main export commodities include crude oil & other mineral products, machinery & electrical equipment, precious metals & stones, transportation equipment, aluminum & other metals.
UAE has the 29th largest export economy in the world & is also known to be the 20th largest importer in the world. The United Arab Emirates main imports are pearls & other precious metals & stones (31 percent of total imports); machinery, sound recorders, reproducers & parts (18 percent); transport vehicles (12 percent); base metals & articles thereof (9 percent) & chemicals & related products (6 percent). Hence, exports & imports are integral to traders in UAE. It is important to understand the role of VAT on imports & exports in the UAE.
UAE VAT on Exports
Exports are counted as taxable supplies. However, they are zero-rated, that is, tax at 0% is applicable on exports. The management of exports of goods is based on the following scenarios:
- When outside a GCC VAT implementing state
- When unregistered recipients in a GCC VAT implementing state
- Registered recipients in a GCC VAT implementing state
- Export of goods that require fitting or fabrication outside the state
Can input tax be retrieved on exports?
Since we know that exports are taxable supplies, input tax can be retrieved on supplies utilized to do exports. If the exporter creates domestic supplies also, then the input tax recovered can be employed to decrease their tax liability. If the exporter is trading exclusively in exports, the exporter can get a reimbursement of the tax paid on inputs. It is also important to note that the records of exports are mandatory to be maintained for a minimum of 5 years from the end of the year to what is mentioned on the invoice.
Value of export of goods & services is to be comprised in tax returns. Information that is to be retained over a minimum period of five years is as follows:
- Customer business details
- Description of goods in detail
- Value of the goods
- Method of transport
- Route of export
- Destination of where the goods will travel & be delivered
- Customer orders
- Sales invoices
- Proof of association between supplier & customer
- Bank statements
- The consignment notes that show goods are received abroad
- Packing lists
- Invoices from transporters
UAE VAT on Imports
Imports are taxable under VAT. When a person registered under VAT in the UAE is importing goods & services, the importer must pay VAT on imports based on ‘reverse charge’. This is in supplement to customs duty imposed on imports. Import scenarios are as follows:
- For a person registered under VAT
- For a person not registered under VAT
- Goods trans-shipped via UAE to other GCC countries
- Goods imported to UAE & exported to other countries
The concept of reverse charge
When a supply is made, usually, the dealer of goods or services is accountable to collect & pay tax to the Federal Tax Authority (FTA). This is known as the forward charge. Under reverse charge, the receiver of the supply is accountable to pay the tax on the supply to the Federal Tax Authority. In the case of imports, as the merchant is outside the UAE & not registered in UAE, the obligation to pay tax on the import becomes the liability of the importer registered under VAT in UAE.
Import tax, however, if paid by the recipient of the supply on imports is authorized for input tax recovery.
It is essential to keep maintained records, for import tax, for a minimum of 5 years from the end of the year to which the invoices refer.
Hence, exports & imports are essential activities for merchants in the UAE. Understanding of the compliance that falls under VAT is highly recommended for businesses to perfectly adhere to the requirements & benefits of VAT.
How can we help?
Our VAT team comprises tax professionals who can deliver positive advice to establish the correct compliance of VAT with respect to all sectors. With comprehensive proficiency & understanding of international tax laws, our team proposes complete VAT support, advice, tax agency & consultancy services to help your company understand how VAT legislation is hassle-free. Our VAT auditors in Dubai, UAE have years of experience in international taxation & can give you extensive knowledge & advice for all your VAT compliances.