Goods Supplied in a Designated Zone, and Connected Shipping or Delivery Services
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 generally regarded as being outside the scope of UAE VAT, unless the goods are supplied to be consumed. For the purposes of this Public Clarification, a designated zone is not considered to be within the UAE unless stated otherwise.
In instances where goods are supplied within a designated zone for consumption (within or outside the designated zone) the place of 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.3 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.
In order 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, Article 51 of Cabinet Decision No. 52 of 2017 on the Executive Regulation of the Federal Decree-Law No. 8 of 2017 on Value Added Tax, was amended by Cabinet Decision No. 88 of 2021 (“Executive Regulation”), with effect from 30 October 2021.
This Public Clarification provides guidance on the application of Article 51(5) and (7) of the Executive Regulation.
Summary
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, 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 UAE.
For purposes of this Public Clarification, the goods mentioned in the previous paragraph are collectively referred to as “Qualifying Goods” where all the requirements of Article 51(5)(b) or (c) of the Executive Regulation are met.
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.
VATP027 – Goods and services supplied in a DZ Download the complete