The UAE Federal Tax Authority or FTA has clarified exemptions that are granted by local VAT regulations to public and private transportation. Cabinet Decision (No 52) of 2017 on Executive Regulations of Federal Decree-Law (No 8) of 2017 Re: UAE Value Added Tax provides specific transactions which are exempt from VAT and considered as zero-rated. The exempt transactions related to transportation or transport operations include:
- Local transport of passengers (not by train or bus)
- Transport originating and ending outside the UAE (outside the scope of VAT)
- transport-related services intended for cross-trade transportation (outside the scope of VAT)
Apart from the exemptions listed above, the following transactions that are related to public and private transport operations are considered as zero-rated under the UAE VAT law:
- Transportation of passengers, inbound and outbound (including intra-GCC)
- Transportation of goods, inbound, and outbound (including intra-GCC)
- Transport-related services that are for transportation, inbound and outbound
- Local transport part or for the purpose of transportation, inbound or outbound
- International transportation, including related supplies
- Supplies of certain air, land, and seas mean of transportation e.g. aircraft and ships
The UAE VAT Law clarified that transportation transactions that are VAT-taxable at the standard rate of five percent are as follows:
- Local transport of passengers in means of transport that don’t qualify for zero-rate or exemption from VAT
- Local transport of passengers in means of transport that qualify for zero-rate or exemption from VAT but for sight-seeing, pleasure, etc.
- Local transport of goods
- Transport-related services that are for the local transport of goods
What means of transport qualify as zero-rate taxability?
As per the local VAT regulations in UAE, the supply of these means of transport, either sea, air, or land, is subject to VAT at zero rates:
- Supply of train or bus that’s designed or adopted in order to be utilized for public transportation (must be for ten or more passengers)
- Supply of boat, ship, or any floating structure that’s designed or adopted in order to be utilized for commercial purposes, but isn’t designed or adapted to provide pleasure, recreation, or sports-related economic activities
- Supply of any aircraft that’s designed or adopted in order to be utilized for commercial transport of goods and passengers, but not designed or specifically adapted for the purpose of sports, pleasure, or recreation
With respect to the aforementioned means of transport and their supply, it’s the responsibility of suppliers to determine whether means of transport supplied isn’t utilized for sports or recreation. Suppliers may ascertain the intended use of customers by obtaining written declarations that specifically state means of transport will be used ONLY for the designated commercial purposes.
Furthermore, the supply of services and goods related to the supply of means of transport designed for operation, maintenance, conversion, or repair of transport will remain zero-rated. Repair and maintenance, therefore, which are provided to any means of transport will be considered as zero-rated in relation to VAT, subject to certain regulatory conditions.
Read also: What Voluntary Disclosure for VAT is in UAE
VAT-Related Responsibilities for Transportation Businesses
All businesses in UAE providing transportation-related services need to record financial transactions and make sure financial records are updated and accurate. The following VAT compliances are required of UAE businesses:
- VAT Registration – an entity registered in UAE is required in obtaining registration when the total value of supplies has reached the threshold for mandatory VAT registration or AED 375,000 for the previous twelve months. A VAT registration application can be filed within thirty days from being required to undergo the registration process.
- VAT Returns – all taxable entities are required in filing VAT returns and make VAT payments on or prior to the twenty-eight days of the month after a tax period concerned. When the due date falls on any public holiday or a weekend, the due date will be on the following working day.
- Filing of Voluntary Disclosure – voluntary disclosure is for a taxable entity to notify the Federal Tax Authority regarding an omission or error in the tax return, tax refund, or tax assessment of a business. If there’s an error that resulted in the tax payable amount being less than what’s required by AED 10,000 or more, then the entity has to file a voluntary VAT disclosure twenty business days starting from the date of when the taxable entity was made aware of the mistake. If there’s an error that resulted in the tax payable amount being less by less than AED 10,000, the taxable entity is obligated in submitting a tax return to correct the mistake from the previous ta return for a specific tax period or file a voluntary disclosure.
If you’re confused regarding VAT policies in the UAE and how they apply to your business, the regulated tax agents in Dubai of Farahat & Co can be of great service! To know more and to discuss your concerns with our tax professionals, call us today!