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What are the conditions for exports to be considered as zero rated VAT supply?

export-zero-rated-vat-supply-conditions

The UAE is by far the largest exporter of goods among all the GCC states and is the 29th largest export economy (as of 2021) in the world. 

If you are in the export sector or looking to get into it , you will be aware that VAT is zero-rated for the export of goods but this depends on satisfying the conditions for zero-rated exports. In other words, providing proof that the you did export goods.  

When can exports be zero-rated? 

Any direct or indirect export of goods from the UAE or other GCC states to outside the GCC states is treated as export at zero-rated, if they meet the conditions specified in the  UAE VAT Law.

Direct Export: Goods from the UAE exported directly from the supplier or by his export agent  who will be sending goods to an overseas customer.

Indirect Export: the overseas customer collects the goods from the UAE supplier and arranges the export of goods to an outside location.

Conditions for zero-rated exports

An export sale can only be zero-rated if the goods are physically moved outside the UAE within 90 days of the supply and both supplier and seller have to keep the official commercial evidence for the export. 

In addition to these conditions, when you do an indirect export, the supplier must ensure that the goods are not altered or modified before being exported and should obtain both official and commercial documents for export. 

Not meeting the conditions will result in the business having to declare & pay the 5% VAT. Here are some practical examples so you can understand the nuances & what to look out for: 

Case 1:

A company in Dubai exports by sea-freight AED150,000 worth of goods to it’s customer in South Africa. The Dubai Company only obtains and retains the customs export declaration and the Bill of lading from its clearance agent. These documents do not meet the criteria for zero-rated tax. 

The company needs to retain both official & commercial evidence of export (like the exit certificate from the relevant customs authority).

If this is not provide, the company will need to remit 5% VAT (7,500AED) to the FTA. 

Case 2

If you are using the support of logistic companies like Aramex or freight forwarders, you need to obtain the export documentation for the export of goods to be considered as zero-rated tax. 

If not, the transaction will be considered as standard rated tax (5%). 

Case 3

An Australian business owner is visiting the UAE  and buys goods to export them to Australia. The customer (Australian business owner) collects the goods from the premises of the seller and exports it using his agent. In this type of transaction, the seller can consider the sale as an export and charge 0% VAT only if he obtains and retains both official & commercial evidence of the export. 

Can import tax be recovered on exports?

As exports are taxable supplies, input tax can be recovered on supplies used to make exports. 

If the exporter also provides local supplies, the input tax recovered can be used to reduce their tax liability. If the exporter is dealing solely in exports, the exporter can get a VAT refund on tax paid on inputs. 

How to claim VAT on Exported Goods? 

In order for an exporters input tax to be considered as eligible for VAT reclaim, the following needs to happen: 

  • The supplier of an exporter much be VAT-registered and considered a taxable person. 
  • VAT on business purchases must be charged corrected by suppliers
  • All receipts must be kept as proof of transaction/ evidence to prove entitlement to VAT zero-rating for exports. 
  • When filling VAT return, you must provide the FTA with the amount that your business incurred for VAT in the accounting period for products which are eligible for VAT reclaim.

Need more insight on VAT? Read CRESCO ACCOUNTING previous blog on VAT returns.  

The standard tax period for exporters in the UAE is:

  • Quarterly for an export business with a yearly turnover below AED 150 million. 
  • Monthly for an export business with a yearly turnover of AED 150 million or more. 

How long do records of exports have to be maintained?

All records have to be maintained for a minimum period of 5 years from the end of the year to which the invoices pertain. 

Example: An export invoice issued on 19 June 2022 should be retained until 31 December 2027.

For VAT Assistance – click here and for Export assistant – click here 

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