1. Scope of tax
Import of goods
VAT becomes chargeable at the point of entry into the UAE, unless goods are placed under customs duty suspension. For goods placed under customs duty suspension, a cash security or bank guarantee may be required to cover the VAT.
VAT on import of goods is charged after the formal import clearance is made in the UAE based on the information provided in the customs declaration.
It is important to note that imports of goods are an entirely separate category, different from supplies of goods and services. Its definition is very wide as seen above and covers the entry of goods in the UAE. This means amongst others that it is not required that a sale takes place for a transaction to constitute an import. The importer for VAT purposes is the importer of record for customs purposes, and that importer is therefore also liable for the payment of import VAT.
The import VAT regime in the UAE is very complex, much more than in other jurisdictions. That is in part due to the way the FTA has implemented VAT, but also due to the complex regulatory environment in the UAE, with multiple customs authorities and free zones.
However, for VAT registered businesses in the UAE which have linked their importer code to their VAT registration through the FTA portal, the application of import VAT is straightforward. For these businesses, the import VAT is not due at the time of importing, but it is due when the importer files his VAT return.
For VAT registered businesses in the UAE which do not have an importer code, or did not link it to their VAT number, the VAT would be paid by a third party, a logistics provider, who pays the import VAT on behalf of the VAT registered business in the UAE. The logistics provider then passes on the import VAT and the associated deduction to the VAT registered business in the UAE by way of a statement (see article 50 UAE VAT Executive Regulations and VAT Public Clarification P012).
For non VAT registered businesses, or organisations not considered as conducting an economic activity, or private persons, these will generally not be able to import goods in the UAE. They will use the services of a courier company. These companies enjoy a special status with the FTA to exercise their obligations in terms of the application of the VAT law. When they import on behalf of a non registered importer, the agent should declare his own TRN or a C/O TRN on the customs declaration and will be responsible for the import VAT. Import agents, or courier companies, have generally signed a specific agreement with the FTA, although the FTA could have also exercised its powers in imposing these obligations on courier companies.
Generally, VAT is applicable at the rate of 5% on the import of goods. However, imports of some goods may be exempt from VAT (and customs duties) in the following cases:
- Goods imported by military forces, and internal security forces;
- Personal effects and gifts accompanying travelers;
- Used personal effects and household items transported by UAE nationals living abroad on return, or expats moving to live in the UAE for the first time, or;
- Returned goods.
Provided the conditions are met for customs purposes, they will be assumed to be met for VAT purposes as well.
Certain imports may also be zero rated, such as the imports of qualifying medicines, medical goods and precious metals. The difference between an exemption and a zero rate for import purposes is irrelevant, given that they do not constitute output transactions impacting the input VAT recovery.
Certain customs suspension regimes also have as a consequence that goods are not considered to be imported. This is the case for temporary admission, goods placed in a customs warehouse, goods in transit, or imported goods intended for re-export.
The import VAT paid by the taxable persons is recoverable subject to the general recovery conditions. The taxable person can deduct the import VAT incurred at customs in ‘box 10' of the VAT return. The import VAT itself will be reported in box 6 or 7, depending on the circumstances.
In regards to the import value of goods imported, this is based on the customs value calculated based on the customs legislation. VAT then applies on top of the customs value, and the customs duties and excise tax (if applicable). The UAE law also foresees a correction mechanism for imports related to transactions between related parties (article 36 UAE VAT Law), however this article is obsolete, given that the customs legislation already has mechanisms to determine the appropriate value.
For temporary exports of goods from the UAE mainland to abroad or into a Designated Zone and where these goods subsequently come back, the import value is solely based on the value of the services rendered (article 42 UAE VAT Law). Again though, similar provisions are found in the customs legislation.
Import of services
The GCC VAT Treaty has two alternative general rules, one applicable for B2B and one for B2C. In the UAE, however this was translated into a general VAT rule, which determines that the place of supply of services is the place of residence of the supplier.
Under the exception, if the services are supplied by a supplier who is not resident in the UAE to a taxable person in the UAE, the place of supply of the services will be in the UAE for VAT purposes.
This also means that when a service is supplied by a supplier who is not resident in the UAE to a non registered taxable person in the UAE, the place of supply of the service will not be in the UAE (save where it falls under a special place of supply rule). The EU has more exceptions to that principle.
Special place of supply rules apply on services such as transportation, services linked to real estate, telecommunication, restaurant, hotels, sports, educational and so on. VAT obligations with respect to these services are determined on the basis of respective place of supply rule.
The UAE taxable person receiving services in the UAE is required to account for VAT through reverse charge mechanism. In practice, the recipient reports the purchase in boxes 3 and 10 of the VAT return.
It is a simplification measure where a taxable recipient of services accounts for any VAT due as opposed to the taxable supplier, i.e. the customer acts as if he is both the supplier and the recipient for VAT purposes and self-assesses any VAT due.
In case the services are supplied by a non-resident supplier to a non-registered UAE customer then the supplier will be required to get registered in the UAE for VAT purposes, but only when the place of supply is already the UAE.