VAT updates in relation to Goods and Services Supplied in a Designated Zone, and Connected Shipping or Delivery Services
The Federal Tax Authority (FTA) has published Public Clarification No.27, in the respective of Cabinet Decision No. 88 of 2021, which has been issued to amend Article- 51 clauses (5) and (7) of the Executive Regulation of the Federal Decree-Law No (8) of 2017 on Value Added Tax (VAT).
The Cabinet Decision No. 88 of 2021 is issued on 28th September 2021, in which the amendments shall be effective from 30th October 2021.
In instances where goods are supplied within a designated zone for consumption (within or outside the designated zone), the supply of these goods shall generally be in the UAE unless a specific exclusion applies. In lieu of such an exclusion, such supplies may potentially be subject to double taxation, i.e., on the transfer of ownership of the goods as well as on importation thereof.
The place of supply of services is generally regarded as being inside the UAE if supplied in the designated zone. In lieu of a special exclusion, the place of supply of shipping or delivery services in respect of goods moved from a designated zone is in the UAE and may require non-resident suppliers of these services to register for VAT in the UAE.
The new amendment in the VAT treatment for the supply of goods in Designated Zones and their connected shipping or delivery services aim to avoid VAT Double Taxation on supplied goods in the Designated Zones and facilitate procedures to non-resident suppliers operating in the Designated Zones, as these goods will be treated – under certain conditions – outside the scope of tax, hence, no tax registration is required from the supplier.
Sub-article 5 of the Regulations amended
As a result of the new Cabinet Decision No. 88, Article 51(5) has been amended to revise the scenarios in which the supply of goods within a Designated Zone will be treated having a place of supply outside the UAE, such that the supply of the goods will be outside the scope of UAE VAT, if one of the following exclusions applies:
- The goods were intended to be incorporated into or used in the production of other goods in the Designated Zone;
- The goods were delivered to a place outside the UAE, and the supplier retains:
• Customs evidence proving that the goods were moved from the DZ; and
• Supporting commercial or official evidence proving the delivery of the goods to a place outside the UAE.
- The goods were moved from the designated zone to a place within the UAE. The supplier retains a document issued by the relevant Customs Department, proving that the goods have been imported and proof that VAT was settled on the same.
Sub-Article 7 added in the Regulations
Under the general rule and the existing Article 51(6) treats the supply of services within a Designated Zone as having the place of supply in the UAE and, therefore, within the scope of VAT.
The new Article 51(7) has been added to provide an exception to that rule, specifically for shipping and delivery services supplied directly in connection with Qualifying Goods will be outside the scope of UAE VAT if all of the following requirements are met:
- The shipping or delivery service is supplied by the same supplier of the goods;
- The supplier of such goods is a non-resident and not registered for VAT in the UAE;
- The goods are sold via an electronic sales platform; and
- The supplier of the goods is not the person owning the electronic sales platform.
Private Clarifications previously issued
Persons to whom Private Clarifications were issued from the FTA in relation to Article 51 of the Executive Regulation should consider the impact of the above mentioned amendments and may apply for new private clarifications, where applicable.