The Federal Tax Authority of UAE provided clarification on goods supplied in a designated zone and connected shipping or delivery services.

The Federal Tax Authority of  United Arab Emirates issued a Public Clarification No. VATP027 regarding goods supplied in a designated zone, and connected shipping or delivery services.

The clarification was much needed to avoid double taxation on goods supplied from a designated zone, and to provide registration relief to non-resident suppliers who also ship or deliver these goods.

ISSUE

Taxable persons are required to impose VAT on every taxable supply and deemed supply made by that person in the UAE. VAT is also imposed on the importation of concerned goods.

The supply of goods within a designated zone is considered outside of UAE VAT scope, unless the goods are supplied to be consumed. In instances where goods are supplied for consumption (within or outside the designated zone) the place of supply of these goods shall generally be in the UAE, otherwise the supplied good is considered an imported good.  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.

CLARIFICATION

Article 51(5) of the Executive Regulation2 was amended to treat the supply of goods in the designated zone as outside the scope of UAE VAT if the goods are consumed outside the designated zone. Those goods are referred to as “qualifying goods” provided evidence is obtained and retained that:

• the goods were delivered to a place outside the UAE

or

• VAT was paid on the importation of those goods into the UA

The service of shipping / delivery of qualifying goods is also outside the scope of UAE VAT if supplied by the same supplier of the goods, provided the supplier is a non-resident who is not registered for VAT in the UAE.

To learn about the details of the clarification go to tax.gov.ae

NOTE: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.