Since 1st January 2018, VAT (Value Added Tax) has been a key pillar of the UAE’s economic system. While the standard rate of VAT in the UAE is 5% (which is the lowest compared to other GCC countries), it is charged on taxable supplies within the UAE. UAE VAT treatments vary for different transactions, such as exporting services. Seeking help from a certified tax agent in the UAE might safeguard against compliance issues.
Having accurate knowledge of on how VAT is defined under UAE VAT law and VAT on services exported outside the UAE is pertinent to identify the rate of VAT to be charged on services provided outside the UAE. Staying updated with the relevant provisions may save your business from UAE FTA penalties and ensure accurate UAE VAT compliance. For dedicated support, guidance and for the best VAT planning, consult an FTA approved Tax Agent and VAT consultant in the UAE such as Jaxa Chartered Accountants.
This article walks you through the UAE VAT applicability on exporting services outside the UAE borders.
An Overview of VAT in the UAE
VAT or value-added tax in the UAE is an indirect tax applied to the consumption of goods and services. The standard rate levied is 5%. VAT is charged at every step of the supply chain – from production to distribution and sale, thus the financial burden lies with the end customer. Businesses act as intermediaries and collect VAT on behalf of the UAE Federal Tax Authority.
VAT Rate Classification in the UAE
The standard VAT rate in the UAE is 5%, applied to most goods and services. However, the UAE VAT system also includes two additional categories:
- Zero-rated supplies (These are taxable supplies under UAE VAT law that are charged at 0%.)
- Exempt supplies (These are no taxable supplies under UAE VAT Law)
Standard-Rated Supplies (5%)
A 5% VAT is levied on the majority of taxable goods and services within the UAE. This includes:
- Retail sales of goods
- Professional and consultancy services
- Commercial property rentals
- Rental of serviced residential property (hotels, hotel apartments etc.)
- Food and beverages
- Electricity and water (utilities)
- Digital and electronic services
- Certain healthcare and education services
Zero-rate Supplies
These are taxed at 0% under UAE VAT regulations, but businesses can still recover input VAT on related expenses. That means you charge 0% to your clients but still benefit from claiming back VAT on your business costs.
- Exports of goods and services to countries outside the UAE
- International transport of goods and passengers
- Supply of crude oil and natural gas
- First sale of new residential properties (within 3 years of construction)
- Approved education services
- Qualified healthcare services
- Supply of Investment-grade precious metals
Exempt Supplies
Exempt supplies under UAE VAT Law refer to specific categories where VAT is not charged, and input VAT on your business costs cannot be recovered.
- Financial services like loans or interest-based banking
- Renting or selling a residential property (except where it can be zero rated)
- Selling bare land i.e. with no buildings or civil works on it
- Local transportation services like public buses and taxis
Accurate VAT classification and applying correct VAT rates is essential to staying compliant with UAE FTA regulations. To ensure compliance and avoid costly errors, it is the best option to choose a qualified VAT consultant in the UAE, such as Jaxa, a trusted name in UAE Tax and accounting services and an FTA approved Tax Agent in the UAE.
Understanding the Place of Supply for Services under UAE VAT Law
Under UAE VAT regulations, the place of supply refers to the location where a service or good is considered supplied for VAT purposes. This determines whether VAT should be charged and what VAT rate applies. The place of supply rules differ for goods and services, and by default, the supplier’s location is considered the place of supply.
Under UAE VAT Law -Article 29, Federal Decree-Law No. 8 of 2017, the place of supply for services is usually determined by the location of the supplier’s business.
Key Exceptions to VAT Place of Supply Rules in the UAE
Under UAE VAT Law, the general rule is that the place of supply for services is the supplier’s place of residence. As per Article 30 of the UAE VAT Executive, exceptions are outlined for certain services, such as those related to real estate, events, or electronic services. In such cases, the place of supply depends on where the service is performed or consumed. These rules ensure accurate VAT treatment and compliance with UAE Federal Tax Authority (FTA) regulations.
Special UAE VAT Rules for Service Location
- Installation & Maintenance Services: UAE VAT applies where the service is carried out.
- Leasing of Transport (non-VAT registered customers): Location where the vehicle is provided.
- Hospitality & Restaurant Services: Taxed at the place of actual service.
- Events (Education, Cultural, Sports, etc.): UAE VAT based on event location.
- Real Estate Services: UAE VAT applies where the property is located.
- Telecom & Electronic Services: Based on where the customer consumes the service.
Under UAE VAT regulations, the standard rate of 5% VAT applies when the place of supply is within the UAE. If the place of supply is outside the UAE, the transaction may qualify as a zero-rated supply or will be Outside the Scope of UAE VAT i.e. Out of Scope supplies to which UAE VAT Laws do not apply. Ensuring compliance with UAE VAT laws is crucial to avoid financial penalties and to maximize VAT recovery opportunities.
VAT Treatment for Services Exported from the UAE
If a UAE business provides services to clients abroad, such a business does not need to charge VAT. Such VAT services in the UAE are treated as
- Zero-Rated Services (0% VAT): Zero-rated services are taxable supplies, but the UAE VAT rate applied is 0%. This means you don’t charge VAT to your client, but you can recover input VAT paid on related expenses.
For businesses to apply zero rated to exported goods from the UAE must ensure the following.
- The client must reside outside the UAE
- The service must be fully performed outside the UAE.
- The service must not involve real estate or movable property located in the UAE.
- The oversead client must not be physcially present in UAE when services are performed.
Some examples of export of services which may be eligible for 0% VAT are:
- UAE IT firm offering remote tech support to clients in the US.
- UAE marketing agency managing social media for a business in Australia.
- Dubai-based software developers are building apps for clients in Singapore.
Out-of-scope Services
Out-of-scope services fall entirely outside the UAE VAT system. These are non-taxable and are not required to be reported in UAE VAT returns.
Applicable scenarios:
- Providing services and the place of supply of services fall outside UAE as per Article 30 of the VAT Decree Law.
Examples
- Providing construction services for real estate property located in United Kingdom.
- Providing installation services for equipment in China.
- Transportation charges for goods from China to Australia (where goods do not enter UAE).
Key Checklist for Zero-Rating Services Under UAE VAT Law
The UAE Federal Tax Authority outlines several conditions that must be met to qualify as zero-rated under UAE VAT regulations.
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Client’s Place of Residence Must Be Outside the UAE
- To qualify for zero-rating VAT in the UAE, the client must not run operations or maintain any fixed business facility within the UAE.
- If a client has multiple locations, the office most directly involved in the service is what counts for VAT purposes.
- The client is still considered a non-resident even if they visit the UAE for under 30 days, provided the visit has no connection to the service.
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Not Tied to Real Estate or Tangible Assets in the UAE
The service should not relate to any UAE real estate or movable goods to qualify for zero-rated VAT.
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No Fixed Place of Business in the UAE
The recipient should not have any business connection in the UAE relevant to the service.
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Documentation You Must Maintain
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Client Residency Proof
Provide official documents showing the client is based outside the UAE.
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Service Agreements
Contracts and agreements must specify service details and confirm the client’s overseas location.
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Proof of Overseas Service Use
Collecting records such as Travel records, emails, or timestamps showing the service was provided outside UAE (where applicable).
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Ongoing Compliance Checks
Regularly review and update documentation to ensure alignment with UAE
VAT regulations and readiness for UAE FTA audits.
Exported Services VAT in the UAE: Tip on Recent Policy Shifts
The UAE has introduced key refinements to its VAT framework concerning exported services. These updates emphasize the importance of documented evidence regarding the client’s residency status and the nature of the service provided. Under the UAE VAT law, failure to meet the updated zero-rating conditions may lead to non-compliance and potential penalties. Staying informed on the latest UAE VAT regulations and seeking guidance from qualified UAE FTA approved tax agent such as Jaxa is essential for smooth and compliant operations.
Stay VAT compliant in the UAE – Jaxa to Assist.
In a nutshell, navigating UAE VAT for overseas clients is challenging. Having a clear understanding of UAE VAT laws, including when to apply zero-rated VAT and when services may be out of scope, can help your business avoid costly mistakes and ensure full UAE FTA compliance. Partnering with a top accounting and auditing firm, as well as a UAE FTA approved tax agent, Jaxa helps your business stay 100% UAE VAT compliant.
Our UAE-certified VAT consultant with 18 years of experience helps to determine the right VAT treatment, file accurate UAE VAT returns, verify documentations, verify client status, maintain audit-ready records, ensure zero rating is correctly applied, and stay fully compliant with UAE FTA regulations.
By partnering with Jaxa, a trusted UAE VAT consultant, your business ensures proper tax treatment, seamless UAE VAT filing, and full compliance with the UAE Federal Tax Authority (FTA) for all cross-border services.
From UAE VAT filings to zero-rating support, Jaxa has your UAE VAT covered.
Explore Hassle-Free VAT Solutions with Jaxa.
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