# VAT for services rendered outside UAE



## laocoon (Jun 27, 2015)

I have a Consulting company (RAK FZE) and all my clients are outside the UAE, which is why I didn't apply for a VAT number for my company at the end of last year.
Am I correct in assuming that all (consulting) services rendered outside of the UAE aren't affected by the VAT introduction and that I therefore won't have any problems going forward with this setup?

Thanks


----------



## twowheelsgood (Feb 21, 2013)

VAT applies to all companies in the Freezones.

Best ask your FZ authority.


----------



## Chocoholic (Oct 29, 2012)

twowheelsgood said:


> VAT applies to all companies in the Freezones.
> 
> Best ask your FZ authority.


That's not the question. Whether the company is FZE or not is irrelevant. The question is, is if all work done is outside the UAE - is the company liable for VAT.

Tricky one this actually.


----------



## twowheelsgood (Feb 21, 2013)

Chocoholic said:


> Whether the company is FZE or not is irrelevant.


That's was my point - its not an FZ issue.

But if the work is performed inside the UAE then VAT will be payable by the client even if they are overseas.


----------



## XDoodlebugger (Jan 24, 2012)

For customers who take delivery and are billed in the UAE are charged VAT. For any of our customers where products and services are delivered and billed in Kuwait or Lebanon for example we do not collect VAT. 

As you are are providing a service done in the UAE and if you invoice in AED (which is the law) and are paid into a local account I believe you need to charge VAT. If you invoice in US$ paid to a US bank you could probably get away without paying VAT (for example). There is a way to get the VAT back if you prove export of a product, but I don't think it would apply to a service that is rendered here. 

Disclaimer: I run a business but am not a beancounter, this is just my understanding after all the meetings I've had to sit through about it. If it was me I would consult a tax expert (as we have done about our business) before you do something that could possibly cost you a lot of money in fines.


----------



## laurent1984 (Oct 26, 2015)

Hello,

Not a accountant either, but I've read my share on the subject. Ask a tax expert for confirmation.

Could you clarify something? When you say that the services are "rendered outside of the UAE", do you mean that you deliver the services physically outside of the UAE or that you work in the UAE and that everything happens through e-mails, online, etc. ?

I'm going to assume you only work for other businesses (B2B status). 

If you literally provide the services outside of the UAE and never work in this country, you would not need to collect any UAE VAT. VAT would have to be paid, by you or your client - I think it depends from one country to another - in the country where the service is provided. 

If you work from the UAE, then yes, you would need to register your company if it generated a revenue above AED 375 000 a year over the last 12 months or plans to exceed that threshold during the next 30 days. But... What you are doing then is an export, which, according to the Federal Decree-Law No. (8) of 2017, is 'a Service to a Person whose Place of Establishment
or Fixed Establishment is outside the State'. Based on article 45 of the same law, those services are zero-rated, and not exempt (The Zero rate shall apply to the following Goods and Services: A direct or indirect Export to outside the Implementing States). This means that you don't collect VAT, but that you need to be registered. You just put 0% VAT on your tax invoice. Now, if you only service businesses outside of the UAE, you have to follow the registration process, but when doing so, you can ask the FTA for an exemption since you don't conduct any business in the UAE. If you Google 'Vat registration guide', you'll see that 'You may apply for exception from VAT registration if you only make zero-rated supplies.'

So in a nutshell : register and ask for exemption if your turnover is more than 375 000 dhs a year and if you work from the UAE.


----------



## laurent1984 (Oct 26, 2015)

twowheelsgood said:


> That's was my point - its not an FZ issue.
> 
> But if the work is performed inside the UAE then VAT will be payable by the client even if they are overseas.


Yes, but I believe it will be in the country where they have their place of establishment, according to the reverse charge principle.


----------



## laocoon (Jun 27, 2015)

Thanks for all your replies.
Just to clarify a bit more: I own a FZE consulting company and all my clients are outside the UAE. My work is done physically in my customer's home countries only (never in the UAE). The invoices I send them are paid in EUR or USD on my UAE bank account.

Thanks.


----------



## laurent1984 (Oct 26, 2015)

OK, so it looks like you would not need to register since 'Every Person, who has a Place of Residence in the State or an Implementing State and is not already registered for Tax, shall register' if 'the total value of all supplies referred to in Article (19) exceeded the Mandatory Registration Threshold over the previous 12-month period'. For a consultancy firm, thoses supplies would be 'Taxable Goods and Services'. I think we need to read 'taxable in the UAE', as the law technically only applies in the state(s) where it's implemented based on the territoriality principle. But again, I'm not a lawyer or a tax expert, so I might be wrong.

What I would also double check if I were you, is that you fulfill all the legal requirements when you go and work abroad, as you may need to register your activity there as well, even if it is only temporary, just like offshore business coming to the UAE to do temporary work technically have to get a TRN now. You might even have to pay taxes. There are tax treaties between the UAE and many other countries, but also a subtlety. Belgium, for instance, doesn't apply its treaty with the UAE as they don't consider the absence of taxation or a 0% tax (for individuals and businesses) a tax at all. You might not be checked yourself, but with time, your clients might, and if there is anything fishy, there's a chance that the tax controllers will reject all the expenses they've deducted from their tax returns based on your invoices, and that they might stop doing business with you. Again, not an expert, just general info that need to be checked based on your personal situation.


----------



## Chocoholic (Oct 29, 2012)

laocoon said:


> Thanks for all your replies.
> Just to clarify a bit more: I own a FZE consulting company and all my clients are outside the UAE. My work is done physically in my customer's home countries only (never in the UAE). The invoices I send them are paid in EUR or USD on my UAE bank account.
> 
> Thanks.


We're in kinda the same situation. We have a FZE company, but although I do work in the UAE, all my husbands parts are conducted solely outside the country.

We don't meet the minimum criteria to register, but it's getting close.

Everyone I speak to gives me a different answer and many will tell you that, even if your business is conducted outside the UAE, if you're paid INTO the UAE, you still need to register as it's income coming into the country.

I'm still trying to find a complete ruling on it.

Feel free to PM me about it and maybe we can get this sorted.


----------



## DubaiChic (Mar 13, 2018)

This is an interesting topic, since now I think this will affect me. 

So let me make sure I get this right. If I set up in a freezone, where my business activity in the UAE is to purely export products to sell in Europe and North America only, I will not have to pay any VAT at all? Is that correct? Income will be going into UK accounts.


----------



## twowheelsgood (Feb 21, 2013)

You will still pay VAT on things, you buy in the UAE don't forget.

Don't forget the cost side of the equation - not just what you put on your invoices to others.


----------



## DubaiChic (Mar 13, 2018)

That's quite obvious basic business practice. No one is going to charge their customer less than what they paid for the item.


----------



## Stevesolar (Dec 21, 2012)

DubaiChic said:


> That's quite obvious basic business practice. No one is going to charge their customer less than what they paid for the item.


Hi,
What is also “obvious” is that VAT registered businesses don’t “pay” VAT - they simply add the VAT amount at the relevant rate to their invoices and pay the collected tax (minus the input VAT paid on their purchases) to the government.
Businesses are simply unpaid tax collectors.
Cheers
Steve


----------



## DubaiChic (Mar 13, 2018)

Stevesolar said:


> DubaiChic said:
> 
> 
> > That's quite obvious basic business practice. No one is going to charge their customer less than what they paid for the item.
> ...


Exactly 😁


----------



## laurent1984 (Oct 26, 2015)

DubaiChic said:


> This is an interesting topic, since now I think this will affect me.
> 
> So let me make sure I get this right. If I set up in a freezone, where my business activity in the UAE is to purely export products to sell in Europe and North America only, I will not have to pay any VAT at all? Is that correct? Income will be going into UK accounts.


I'm assuming you are asking if you're going to have to be VAT-registered. As explained before, you will have to register if your turnover is more than AED 375k a year or if you think you'll reach that threshold in the next 30 days. You may, however, during the registration process, ask the Federal Tax Authority for an exemption based on the fact that you only do exports. The VAT registration guide states that 'You may apply for exception from VAT registration if you only make zero-rated supplies. You are not eligible for exception from VAT registration if you make zero-rated supplies along with standard rated supplies.' (Source: https://www.tax.gov.ae/pdf/Registration-User-Guide-VAT-VATG102_English_1.pdf).

You will have to pay 5% on what you buy. You are right in saying that no one is going to charge their customer less than what they paid for the item, but if you're able to recover those 5%, this might also mean that you can sell those goods at a more attractive price, which could in turn attract more business. You just have to do the math : if you register, will the amount you recover be higher that what what being VAT compliant costs you? Is yes, then it allows you to be more competitive and I would not ask for the exemption.


----------



## laurent1984 (Oct 26, 2015)

Chocoholic said:


> We're in kinda the same situation. We have a FZE company, but although I do work in the UAE, all my husbands parts are conducted solely outside the country.
> 
> We don't meet the minimum criteria to register, but it's getting close.
> 
> ...


There's definitely some confusion / confusing information. Based on the Federal Decree-Law No. (8) (https://government.ae/-/media/Infor...nvestment/En-VATDecreeLawNo8of2017.ashx?la=en), you're supposed to register if your taxable supplies are more than the mandatory threshold, with taxable supplies being "Goods or Services for a Consideration by a Person conducting Business in the State" where business is "Any activity conducted regularly, on an ongoing basis and independently by any Person, in any location" and the state refers to the UAE. So if you put all those definitions together, you get something like "Goods or services provided by a person conducting any activity conducted regularly, on an ongoing basis and independently by any Person, in any location, in the UAE". This seems to be confirmed by the FTA on their website (https://www.tax.gov.ae/registering-for-vat.aspx) : 

"For the purposes of understanding whether a registration obligation exists, a taxable supply refers to a supply of goods or services made by a business in the UAE that may be taxed at a rate of either 5% or 0%. Imports are also taken into consideration for this purpose, if a supply of such goods or services would be taxable if made within the UAE."

So far it looks like it has to be "in the UAE"... But if you look at the Cabinet Decision No. (52) (https://www.mof.gov.ae/En/lawsAndPo.../Documents/Cabinet Decision No 52 of 2017.pdf), article 31 states that "the Export of Services shall be zero-rated" if "the services are actually performed outside the Implementing States". So if they are zero-rated, that means they are considered as "taxable"... Maybe it's because the decree-law does state that 'The place of supply of Services shall be the Place of Residence of the Supplier'. Confusing... 

To sum it up : 
- if you have a business that only does exports of services from the UAE and if > 375 k : you may ask for exemption
- if you have a business that does exports of services from the UAE and/or outside the UAE : not sure. Looks like they are / might be taxable after all. I would try and register (and ask for potential exemption if interesting in your case). If it turns out you can't register, the FTA will let you know.


----------



## Chocoholic (Oct 29, 2012)

laurent1984 said:


> There's definitely some confusion / confusing information. Based on the Federal Decree-Law No. (8) (https://government.ae/-/media/Infor...nvestment/En-VATDecreeLawNo8of2017.ashx?la=en), you're supposed to register if your taxable supplies are more than the mandatory threshold, with taxable supplies being "Goods or Services for a Consideration by a Person conducting Business in the State" where business is "Any activity conducted regularly, on an ongoing basis and independently by any Person, in any location" and the state refers to the UAE. So if you put all those definitions together, you get something like "Goods or services provided by a person conducting any activity conducted regularly, on an ongoing basis and independently by any Person, in any location, in the UAE". This seems to be confirmed by the FTA on their website (https://www.tax.gov.ae/registering-for-vat.aspx) :
> 
> "For the purposes of understanding whether a registration obligation exists, a taxable supply refers to a supply of goods or services made by a business in the UAE that may be taxed at a rate of either 5% or 0%. Imports are also taken into consideration for this purpose, if a supply of such goods or services would be taxable if made within the UAE."
> 
> ...


But if your income is less than the 375k, you don't have to register anyway, it's only if you go over this threshold.


----------



## laurent1984 (Oct 26, 2015)

Chocoholic said:


> But if your income is less than the 375k, you don't have to register anyway, it's only if you go over this threshold.


That's right, but I don't know what the OP's situation is in that respect. If you ever get there yourself, I'd be curious to know what the FTA tells you.


----------



## Malbec (Jan 2, 2014)

I am in the same boat as some of you. My FZE company provide consulting services to EU companies. I get paid in EUR. I don't do business locally at all. I read the VAT application form very carefully and applied for VAT exemption. They rejected the initial application asking me to correct this details:

_"Section 7. Exception from VAT Registration- your company provided taxable activates as per UAE Tax law you are not eligible to be under zero rate. (Kindly adjust the answer to be NO)"_

I sent them an email explaining the position of the company but frankly their response was not very helpful:

_"In case it is resubmitted this means that there are some documents that should be changed or adjusted, kindly check your registered email address in order to check the comments provided by FTA Registration and make the needed changes to proceed with your application."_

If you read the details of the zero-rated activities, there were listed only few of them which makes me thinking that all other companies (that don't fall within zero-rated scope) regardless of their nature of business have to register for VAT and have to submit the VAT returns quarterly. When it comes to charging VAT however, the supplies provided by my company are outside of UAE of GCC for that matter, so I believe 0% VAT rate apply due to export. It is similar in Europe, when company from country A invoice company from country B, it allows them for 0% VAT intra-community trading.

I am seeking professional advice on this, as I am a bit lost as well. I think however the reason they don't allow VAT exemption for FZEs is that the nature of the business may shift or you may suddenly have a need to invoice UAE based customer and charge him with VAT. The nature of the FZE companies allow you to trade within the UAE.


----------



## Malbec (Jan 2, 2014)

I have some update. Basically any FZE company should have registered for VAT, because any export of services is considered a taxable supply subject at zero rate. It is possible to apply for exception from VAT (because of zero rated export supplies only) but it is at FTA discretion to give such exception or not.

Also the FTA answers have more sense these days:
_"If the value of your taxable supplies is above the mandatory VAT registration threshold you are required to register for VAT.

However, if ALL your taxable supplies are zero rated you may request to be excepted from registering for VAT.

If you are excepted from VAT registration you will not be able to recover any VAT you incur in running your business.

In addition, if you make ANY standard rated supplies you will be required to notify the FTA of the change and you will be required to register and account for VAT on any taxable supplies at 5% that you make."_


----------



## Chocoholic (Oct 29, 2012)

Ok, so I managed to get a clear answer on this - I spoke to the Director General of the FTA.

If you have a freezone company, but you offer services outside the UAE - IF you are over the 375,000 dhs threshold you MUST register for VAT, but you will be zero rated. You still need to file tax returns.

It's only if you're exporting goods, that you don't need to register. But for services, even if solely outside the country, you have to.


----------



## sahib (Apr 20, 2018)

The UAE Govt introduced a 5 per cent VAT from 1 January. Who have yet to register for VAT to do so they can avoid fines and other legal issues.


----------



## Chocoholic (Oct 29, 2012)

sahib said:


> The UAE Govt introduced a 5 per cent VAT from 1 January. Who have yet to register for VAT to do so they can avoid fines and other legal issues.


Those deadlines have now past - if you're late registering now when you should have done, you'll be fined.


----------

