What does zero-rating on export services mean?

The zero-rated on export services means that services which are rendered or exported outside the UAE are subject to the Zero-rated VAT, i.e. the supplier does not have to pay output tax on the export of services and the entities can claim input tax on the services they provide. The zero rates of VAT on supplies means that the goods will still be taxable, but the rate will be zero.

What you need to know about UAE zero-rating on export services:

In order to be able to charge zero-rated on exports of services, companies must be aware of the conditions that must be met. Article 31 of the Executive Regulation on Value Added Tax answers the question of when to apply the zero-rating.

The following are the main elements and the conditions mentioned in the above-said article:

·       The recipient of the service must not have a place of residence in the state (UAE).

If the recipient has any of the following establishments in the UAE then it may be considered that he has a place of residence in the state:

a) Place of establishment:

Basically, it is the location where the business is established and major management decisions or central managerial functions are made. This may include the headquarters of a company or where the directors are seated.

b) Fixed establishment:

It is defined as a permanent business location with adequate human and technological resources to provide and acquire goods and services, including its branches.

Therefore, the recipient won’t receive services at zero-rated

It may be the case that the recipient has multiple establishments, some of which may be in the UAE and others elsewhere. If this is the case, it must be determined which establishment is closely related to the service.

You might provide services to a company with a head office in India and a branch in the UAE, for example. The question now arises: which one should be considered as the place of residence? In these circumstances, the law tells the supplier to analyze carefully and determine which of the following is closely related to the supply.

·       The recipient of the service must be outside the state (UAE) while the services are rendered. Even a temporary presence of the recipient will not qualify for zero-rated exports.

There are some sub-conditions which is required to consider a person outside the state:

a) The recipient must not be present in the UAE for more than 30 days

b) If the recipient is in the UAE then his presence must not be connected with the service to be rendered.

·       The services supplied must not be directly connected with the real estate in UAE or any improvements and movable personal assets in UAE.

The above-mentioned conditions and elements must be kept in mind before treating an export of service as zero-rated exports.

Some additional clarification related to zero rate on export services in UAE:

In cases where a recipient may have multiple establishments, the provider of the service may experience some confusion regarding the application of zero rates. To avoid such confusion, a test must be conducted to identify which establishment closely relates to the service:

a) Which establishment is titled as the contractual recipient of the supply?

b) Which establishment will be benefiting from the supply?

c) Which establishment is to receive the invoice and will make payment for the service?

d) Which establishment issues instructions to the supplier?

·       When determining the residence of a recipient, the recipient’s location before and after service cannot be considered.

·       The authority clearly states that any of the criteria that are not met must be charged at the standard VAT rate.

The supplier must check all the required documents and facts to ensure that the recipient qualifies for zero rate exports