The United Arab Emirates (UAE) holds a prominent position in global trade, ranking as the largest exporting state in the Gulf Cooperation Council (GCC). Notable exports from the UAE include electronics, precious metals, and gemstones, placing it as the 29th largest export economy worldwide. Simultaneously, it ranks as the 20th largest importer, with gold, diamonds, jewelry, and cars being among its primary imports. This underscores the significance of both exports and imports for businesses operating in the UAE. In this article, we will explore the VAT treatment of exports and imports in the UAE.
When goods or services are supplied from the UAE to a party located outside the UAE, such transactions are referred to as exports. The recipient’s location can be either their place of establishment or a fixed establishment.
*Are exports subject to taxation?*
Exports are indeed considered taxable supplies; however, they are zero-rated, meaning that a 0% tax rate is applied to exports. The treatment of exports is contingent on specific scenarios and can be categorized as follows:
1. Export of goods to a destination outside a GCC VAT implementing state.
2. Export of goods to unregistered recipients within a GCC VAT implementing state.
3. Export of goods to registered recipients within a GCC VAT implementing state.
4. Export of goods requiring installation or assembly outside the state.
*Can input tax be recovered on exports?*
Given that exports are considered taxable supplies, input tax can be recovered on supplies used for the purpose of making exports. If an exporter also engages in domestic supplies, the recovered input tax can offset their tax liability. For exporters exclusively dealing with exports, they can seek a refund of the tax paid on inputs.
*Are records of exports required to be maintained?*
Yes, records of export transactions must be retained for a minimum of five years from the end of the fiscal year to which the invoices relate. For example, an export invoice issued on January 5th, 2018, should be retained until December 31st, 2023.
Imports, on the other hand, involve the receipt of goods or services from outside the UAE into the country.
*Are imports subject to taxation?*
Imports are taxable under the UAE’s VAT system. When an entity registered under VAT in the UAE imports goods or services, the importer is responsible for paying VAT on imports through the reverse charge mechanism. This VAT payment is in addition to any customs duties applied to the imported goods. Import scenarios are categorized as follows:
1. Import by a VAT-registered entity in the UAE.
2. Import by an entity not registered under VAT.
3. Goods trans-shipped through the UAE to other GCC countries.
4. Goods imported to the UAE and subsequently exported to other countries.
*What is reverse charge?*
Typically, the supplier of goods or services is responsible for collecting and remitting tax to the Federal Tax Authority (FTA) in a forward charge arrangement. However, under the reverse charge mechanism, the recipient of the supply is liable to pay the tax directly to the FTA. In the case of imports, where the supplier is located outside the UAE and thus not registered there, the responsibility for paying tax on the import falls on the VAT-registered importer in the UAE.
*What is the VAT rate on imports?*
Imports are generally subject to a 5% VAT rate. The only exception is precious metals, which are subject to a 0% VAT rate. The application of the same VAT rate on imports as on domestic supplies ensures equitable taxation for both imported and domestically supplied goods.
*Can input tax be recovered on imports?*
Yes, the tax paid by the importer on imports is eligible for input tax recovery.
*Are records of imports required to be maintained?*
Yes, records of import transactions must be retained for a minimum of five years from the end of the fiscal year to which the invoices pertain.
In conclusion, exports and imports play pivotal roles in the activities of traders in the UAE. It is crucial for businesses engaged in these activities to have a solid understanding of VAT compliance to meet their obligations accurately and take advantage of the benefits offered by the VAT system.
You can also register for VAT Registration on our website: