Zero-Rating Export Services in the UAE: A 2024 VAT Guide

VAT Update: Updated Executive Regulation on VAT on “Zero-rating the Export of Services” issued by FTA

Zero-Rating Export Services in the UAE: As updated by Cabinet Decision No. 100 of 2024 ( effective from 15 November 2024)

What is meant by Zero-rating of export of services?

The term "zero-rating of export services" refers to the services rendered or exported outside the UAE are subject to a ZERO VAT rate, which means that the supplier is not required to charge output tax on services exported and that registered entities can reclaim input tax on services provided. When you make zero-rate supplies, the goods are still VAT taxable, but the rate of VAT is zero.

The term 'Outside of State' 

Zero-rating the export of services is addressed under Article 31 of the Executive Regulation on Value Added Tax (VAT). Article 31(2), which specifies the word "Outside the State," was revised by Cabinet Decision No. 46 of 2020 (released on June 4, 2020). If a person is only present in the UAE for less than 30 days and such presence is not effectively connected with the supply, are termed "outside the state."

Which services can be zero-rated?

Article 31(1) of the Executive Regulation on VAT (as amended by the Cabinet Decision No. 100 of 2024 and effective from 15 November 2024) prescribes the conditions for zero-rating of export services. All the following conditions must be met:

1. The recipient does not have a Place of Residence in the Implementing State and who is outside the UAE at the time the services are performed

2. The services are not provided in connection with real estate situated in the UAE including any improvements to the real estate or directly in connection with moveable asset situated in the UAE at the time the services are performed

3. The services are not treated to be performed in the UAE under the VAT Law and the recipient must not receive such services in the UAE.

4. Where the services or the arrangement of services are actually performed outside the Implementing States

5. Where the supply consists of the facilitation of outbound tour packages, for that part of the services.

For zero-rating of services, it is important that the services provided must not be received by any person in the UAE.

Key Considerations

• Recipient Identification: In cases where a recipient is associated with multiple establishments, the selection of the relevant one is made considering factors such as contractual agreements, beneficiary information, invoice and payment details and provided instructions.
  
  
• Recipient Location: The recipient's location before or after service delivery is irrelevant for determining residence.
  
  
• Standard Rate: If any eligibility criteria are not met, apply the standard VAT rate.
  
  
• Documentation: All the required documents and facts must be analyzed by the supplier to ensure that the recipient is eligible for zero rate export service.

An Example demonstrating Zero-rating of export of services

ABC Limited is a UK-based firm with a branch in the United Arab Emirates. ABC Limited had contracted with XYZ LLC, a UAE-based company, to supply certain services over a six-month period. The UAE branch is not involved in the services and is not a recipient of them. ABC Limited will not be considered a resident of the United Arab Emirates. During this time, the Finance Director of ABC Limited traveled to Dubai for a 5-day conference that had nothing to do with the services or the service provider. ABC Limited will be regarded an out-of-state company. Because both qualifications are met, XYZ LLC's services qualify as exports of services and will be zero-rated for VAT purpose

What steps do businesses need to take?

With the release of the Executive Regulations (effective from 15 November 2024) the FTA will expect businesses to carefully consider whether or not the criteria for zero-rating the export of services are satisfied and ensure that appropriate supporting evidence is available. Conducting an audit to determine that the services offered by a firm can be charged at zero percent and to evaluate that all of the conditions are met by the recipient will be the best course of action. This may require changes to existing processes and procedures.

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