Issue
Article 34 of Cabinet Decision No. 52 of 2017 on the Executive Regulations of the Federal Decree-Law No. 8 of 2017 on Value Added Tax (“VAT Executive Regulations”) states the means of transport which qualify for zero-rating under Clause 4 of Article 45 of the Federal Decree-Law No. 8 of 2017 on Value Added Tax (“VAT Law”).
One such qualifying means of transport includes the supply of a bus or train that is designed or adapted to be used for public transportation of 10 or more passengers.
This Public Clarification shall discuss the definition of ‘public transportation’ and its interpretation for the purposes of identifying those buses or trains which qualify to be supplied at the zero rate under this provision.
For the avoidance of doubt, this Public Clarification impacts upon the VAT liability of the supply of the vehicles themselves, and does not affect the VAT liability of transportation services supplied under Clause 2 of Article 45 of the VAT Law (i.e. international transport of passengers and goods, which is zero-rated) or under Clause 4 of Article 46 of the VAT Law (i.e. local passenger transport services, which is exempt from VAT). The conditions for applying the zero-rate or exemption to such transport services are covered in Article 33 and Article 45 of the Executive Regulations respectively.
Summary
Only buses or trains which are designed or adapted to be used for the mass transport of individuals, without being restricted to a specific category of users, shall qualify to be supplied at the zero rate.
As a result, those means of transport which are designed to transport a specific category of individuals, such as school students or employees of a business, do not meet the conditions to be treated as a qualifying means of transport for the purposes of the zero-rating provisions. Such means of transport shall therefore be subject to the standard rate of VAT.
Whether or not the original supply of the means of transport qualified for zero rating has no impact on the VAT liability of any charges made for the supply of transportation services. The VAT liability of supplying transportation services shall be determined based on whether the transportation is local (and therefore exempt from VAT) or international (and therefore zero rated).