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New rules on VAT zero-rating of export of services in the UAE

At the end of July 2020, the UAE FTA (Federal Tax Authority) issued a Public Clarification VATP019 under UAE VAT law explaining the application of VAT zero rate concerning the export of services.

It reflects the FTA’s view on application of the zero rating conditions in Article 31(1)(a) of the Executive Regulation of the Federal Decree-Law No. 8 of 2017 on VAT in relation to the residency and location of the recipient of services, taking into account the amendments made to Article 31(2) of the same Executive Regulation in Cabinet Decision No. 46 of 2020.

As it is summarized, “in accordance with Article 31(1)(a)(1) of the Executive Regulation, a supply may only be zero rated where the recipient of services does not have a place of residence in an Implementing State and is outside the UAE at the time the services are performed. In determining whether these conditions are met, the supplier must consider all available facts in order to identify the residency status and the location of the recipient. Where the recipient has multiple establishments, the supplier must also determine which establishment of the recipient is most closely related to the supply”.

The FTA explains:
  1. “The first condition for zero-rating (i.e. that the recipient of services should not have a place of residence in an Implementing State) will be satisfied if the recipient does not have a place of residence in the UAE”;
  2. “Where a recipient has a number of establishments in different countries, the place of residence of that recipient should be considered to be the country in which the recipient’s place of establishment or fixed establishment most closely related to the supply of services being made is located”;
  3. The second condition for zero-rating (i.e. that the services are supplied to the recipient who is outside the UAE at the time the services are performed) should be interpreted based on the extension to the term “outside the UAE”;
  4. “A person can still be considered as being outside the UAE where they only have a short-term presence in the UAE of less than a month and the presence is not effectively connected with the supply”.
The UAE FTA expressly states that where all conditions for the zero-rating of the export of services cannot be ascertained, the supplier must apply the standard rate for the supply.
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