UAE VAT Updates – Revised List of Designated Zones in UAE and amended UAE VAT Executive Regulations on goods supplies in a Designated Zone and connected shipping or delivery charges
The Federal Tax Authority (FTA) recently updated the list of Designated Zones (DZ) in the UAE by adding one DZ and excluding three DZs from the existing list of DZs.
The UAE Cabinet has issued Decision Number 88 of 2021 to amend Article 51 of the UAE VAT Executive Regulations to be effective from 30th October 2021. Consequently, the FTA also released a VAT Public Clarification VATP027 (Clarification) that provides guidance on the application of Article 51(5) and 51 (7) of the Executive Regulations.
WHAT’S NEW?
I. Amendments to the DZ list
- Dubai Commerce City is newly classified as a DZ effective from 1st January 2021.
- Dubai Textile City has ceased to be DZ with effect from 4th April 2021.
- The Free Zone Area in Al Quoz has ceased to be a DZ with effect from 1st July 2021.
- RAK Airport Free Zone has ceased to be a DZ with effect from 4th July 2019.
Key impact areas and considerations may include the following:
- Businesses operating in the ceased DZs should revisit the VAT treatment applied on the imports, exports, and supply of goods to customers in UAE Mainland from the date it ceased to be a DZ to make necessary changes where required.
- Businesses in the ceased DZs are encouraged to analyze their VAT Registration position in the UAE.
- Businesses in the newly added DZ should evaluate the applicability of VAT to their transactions.
II. Amendments to Article 51 of the UAE VAT Executive Regulations
To avoid double taxation on goods supplied from the DZ, and to provide registration relief to non-resident suppliers who also ship or deliver these goods, Article 51 of the UAE VAT Executive Regulations was amended by Cabinet Decision No. 88 of 2021.
Amendment to Article 51(5)
Amended Article 51 (5) revises the scenarios in which the supply of the goods will be outside the scope of UAE VAT within DZ, as follows:
- The goods were intended to be incorporated into or used in the production of other goods in the DZ.
- The goods are delivered to a place outside the UAE and the supplier retains the Customs evidence to prove the movement of goods from the DZ, and Commercial or official evidence to prove the delivery of the goods is outside the UAE.
- Where the goods are imported from the DZ to the mainland UAE and the supplier retains official evidence proving that the goods were imported as well as evidence that VAT has been paid on that import.
If any of the above conditions are not met, the sale of goods for consumption shall be treated as being within the scope of UAE VAT and subject to VAT at 5%, unless it qualifies for zero-rating, as well as subject to import VAT.
Amendment to Article 51(7)
As a default rule, the place of supply for any service supplied in a DZ is in the UAE and hence it is within the scope of UAE VAT.
As an exception to the default rule, shipping or delivery services will be considered as outside the scope of UAE VAT subject to fulfillment of the below conditions:
- The shipping or delivery service is supplied by the same supplier of the goods.
- The supplier of such goods is a non-resident who is not registered for VAT in the UAE.
- The goods are sold via an electronic sales platform.
- The supplier of goods is not owning the electronic sales platform.
The FTA clarifies in the Clarification that the term “electronic sales platform” means any type of online sales platform, including websites and electronic applications, which bring together third-party sellers and buyers and through which goods may be sold and purchased with or without shipping or delivery services.
The amended Article 51 (7) provides a UAE VAT registration relief for non-residents if they only sell the goods to which the above-mentioned exceptions apply, on an electronic sales platform, and they ship or deliver these goods to customers.
HOW CAN WE HELP?
Rethink as an entity provides VAT advisory, optimization, registration, implementation, compliance, and training services in UAE, Bahrain, KSA, and the GCC.
Our team of senior qualified tax advisors, finance experts, and tax accountants are happy to provide practical help and advice, to ensure timely and cost-effective VAT services.
Based on our local and international experience, we understand that VAT is a complex tax and would certainly suffer numerous changes in the upcoming years. Rethink’s VAT services are aimed to suit both basic and complex returns for SMEs and larger enterprises.
WHO ARE WE?
Re/think is a boutique accounting, audit, advisory, regulatory compliance, and tax advisory firm with offices in Dubai and Abu Dhabi (ADGM) focused on providing businesses of varying sizes with timely, proactive, and customized business solutions from start-up and early development to the latest stages of a business lifecycle.
Authors
Mariia Hordiichuk
Tax Manager
Neha Kelkar
Tax Manager
