The United Arab Emirates (UAE) is the biggest exporting State amongst all the Gulf Cooperation Council (GCC) States. The country exports several vital products including precious metals, electronics and stones among other options. It is the world’s 29th biggest export economy and its 20th biggest importer. Diamonds, gold, jewelry and cars make up the largest imports for the UAE. As a result, the entire imports and exports sector remains crucial for UAE’s businesses and traders. Here’s looking to the taxability quotient for both exports and imports.
Exports and VAT
Exports occur whenever services/goods are supplied to a person located outside UAE from the UAE. The recipient’s location can be the individual’s fixed establishment or place of establishment. Exports are perceived as taxable supplies even though they are zero rated, i.e. 0% VAT is applicable for exports. Treatment depends on these parameters:
- Export of goods outside a state that implements GCC VAT.
- Export of goods to recipients who are unregistered in a state that implements GCC VAT.
- Export of goods to recipients who are registered in a state that implements GCC VAT.
- Export of goods which require assembly/installation outside the state in question.
Since exports are perceived as taxable supplies, recovery of input tax is possible on supplies used for making exports. In case of domestic supplies as well, input tax that is recovered can be used for lowering tax outgo. In case exporters deal only in exports, then they are eligible for tax refund on inputs. Records of all exports have to be maintained for at least 5 years from the end of the year in which the invoices were generated.
Imports and VAT
The supply is named as an import whenever services/goods are received from outside the country into the United Arab Emirates (UAE). Imports are taxable as per VAT. Whenever any person with VAT registration in the UAE imports any services/goods, the VAT has to be paid on the imports on reverse charge mechanism. This comes in addition to customs duty that is imposed on imports. Here are the key parameters for the same:
- Imports by persons who are registered under the VAT regime.
- Imports by persons who do not have VAT registration.
- Goods which are trans-shipped to other GCC countries through the UAE.
- Goods imported to the UAE and then exported to other countries.
Whenever any supply is made, the supplier of services/goods will have liability for collection and payment of taxes to the FTA (Federal Tax Authority). This is known as forward charge. Under the reverse charge mechanism, supply recipients will have liability for paying taxes on supply to the FTA. For imports, since suppliers are outside the country and are not registered in UAE, liability for taxation will fall on the importer who is registered in the UAE under VAT.
VAT rates and other aspects for imports
The rate of 5% will apply as VAT on imports. Exceptions will only be made for imports of precious metals where 0% will be the applicable rate. The VAT rate on imports has been kept at the same threshold as the VAT rate that applies for domestic supplies. Input taxes that have been paid by supply recipients on imports will be eligible for getting refunds. Records of imports have to be maintained for at least 5 years from the end of the year when the invoices were generated.
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