Incoterms are a term used to denote global trading. They started being used commonly amongst several business groups and associations with the unveiling of VAT in the United Arab Emirates (UAE). Imports and also accounting on the basis of the VAT regulations in the United Arab Emirates (UAE) have always been of particular importance ever since VAT was unveiled in 2018. With the introduction of a new system for reverse charges, the authorities have launched a new accounting system for VAT during imports and also doing away with the requirement of paying up VAT, prior to goods being cleared from customs.

Incoterms should be carefully understood and analyzed by businesses prior to working out taxability since multiple terms denote varying responsibilities and rights as well. Incoterms are specific commercial terms which have been clearly defined by the International Chamber of Commerce and they outline several trading practices/processes which are part of global supplies. These terms are clearly identified worldwide and enable facilitation of sale contracts across the globe as well. The International Chamber of Commerce has updated and published Incoterms at intervals. The first publication was made in the year 1923 and the last one was witnessed in 2019 and this is the 9th edition of the terms of contracts.

Importance of Incoterms

Incoterms have major importance by way of the indirect taxation system since the duty charges of supplies are worked out on the basis of several of these terms. Taxes remitted by the importers to the Government also vary on the basis of Incoterms that have been notified by multiple countries. Along with costs of duty, responsibilities of paying duties also shift to another person from one individual, on the basis of Incoterms to which these contracts are tied to. Hence, businesses are required to clearly define the same before venturing into global trade.

Incoterms work as standard regulations/guidelines for companies worldwide and this also helps in doing away with the confusion emanating from several definitions of such regulations in multiple countries.

Major Incoterms applicable in the United Arab Emirates (UAE)

  • EXW- Ex Works contracts are those where suppliers make items available at their own locations/factories and buyers will be responsible for taking their own deliveries from the same. The seller has lower responsibility since ownership is transferred prior to transit and shipment costs are the responsibilities of foreign buyers along with exports and customs clearances.
  • CIF- Cost, Insurance and Freight which refers to contracts where liabilities of goods transportation till the buyer’s port are borne by the sellers who also cover costs of insurance and freight till the purchase country. Clearances from port and delivery to buyer locations are not responsibilities of sellers though.
  • FOB- Freight on Board and these contracts mean that sellers will have to bear costs/liabilities till goods are fully loaded onto ships. Export clearances at origin ports will be also be the responsibility of the seller. Yet, post loading of goods and handover of export documents to foreign buyers, the latter will have ownership transferred and further costs are to be borne by him/her.
  • DAP- Delivered at Place where the seller has to deliver items to the buyer’s site. The whole responsibility and risks of supply lie with the seller in such cases.
  • DDP- Delivered Duty Paid- This is an Incoterm where sellers have the highest liability for supply. They will deliver goods at the buyer’s location and unloading charges will have to be incurred by suppliers/sellers.

For help with identifying the right Incoterms and also registering for VAT in UAE, businesses can reach out to GCC Filings. The company will also help them with auditing, accounting, taxation, company incorporation and a whole host of other services.

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