VAT Applicability on Supply of B2B Passenger Transportation Services in UAE
Value Added Tax (VAT) has had a great impact on the UAE businesses since its introduction in 2018. The impact of VAT cuts across a diverse range of business sectors including transportation services in the UAE. Article 46 of the VAT Decree-Law, states that the supply of local passenger transport services is exempt from VAT in the UAE. In light of this, a major question arises whether the B2B supply of transportation service is exempt from VAT or should be treated as a taxable supply.
B2B supplies are defined as the transactions between two businesses rather than a transaction between a business and an individual customer. VAT consultants in Dubai can help you have a clear answer on the VAT applicability on the Supply of B2B Passenger Transportation Services. Meanwhile, the following article will offer a glimpse into the major aspects of this matter:
Relevant Provisions in the UAE VAT Law
Article 45 of the Executive Regulations of the UAE VAT Law specifies that the supply of local passenger transport (private or public) by land, water or air will be exempt from VAT. However, the exemption applies only when the transportation services are provided as a qualifying means of transport. The qualifying means of transport means a motor vehicle designed or adapted to facilitate the transportation of passengers. Such qualifying means of transport include a taxi, bus, railway train, tram, monorail, or similar means of transport, designed or adapted for the transport of passengers. In short, the exemption applies in the following conditions:
- Transportation services provided from one place in the UAE to another place in the UAE
- Transportation services provided in a qualifying means of transport
- Transportation services are not undertaken for the purpose of pleasure trips
Illustrating the VAT Applicability of B2B Transportation Services
Based on the three conditions provided in the relevant provisions of the UAE VAT Law, let’s illustrate the VAT applicability of B2B transportation services through an example. PQR LLC is a UAE based company providing transportation services to its clients. PQR LLC’s modes of transportation may include a car or bus with a driver. Their clients include both individuals and companies. Let’s find out the VAT applicability on the following services provided by PQR LLC:
1. Transporting individual clients in motorcar from one place to another (both in UAE)
In this scenario, PQR LLC provides transportation services in a motor car from one place in the UAE to another place in the UAE. It is a qualifying means of transport and the services were not undertaken to facilitate a pleasure trip. Since it meets all the conditions specified in Article 45 of the VAT Law, the supply will be exempt from VAT. VAT consultants in Dubai can provide you with more information on this.
2. Transporting employees of a client company in the bus
Here, PQR LLC is transporting a client’s (company) employees from their accommodation to offices and vice versa. In this scenario, the company provides transportation services in a bus, which is a qualifying means of transport. Moreover, the services are provided from one place in the UAE to another place in the UAE.
Moreover, the transportation services are not undertaken to facilitate a pleasurable trip. Even though the supplier is contractually making the supply to another business, it is not relevant in determining the supply here. In light of this, the supply is exempt from VAT. Consult with tax agents in Dubai for further clarification.
3. Transportation of tourist clients in motorcar as a pleasure trip
In this transaction, PQR LLC transports tourist clients to beaches, malls & restaurants in UAE for a pleasure trip. The tourists are being transported to various places in the UAE in a motor car, which is a qualifying means of transport. However, the services are undertaken to facilitate entertainment/pleasure trips. In this scenario, the supply doesn’t meet the third condition set out as per Article 45 of the Executive Regulations of the UAE VAT Decree-Law.
It means the supply in this scenario will not be qualified as local passenger transportation services eligible for Exemption under Article 46 of the VAT Decree-Law. In this situation, the supplier will be charged at a standard rate of 5% on the value of supply. Consult with VAT consultants in Dubai to know the relevant tax rates.
Seek Advice From the Best VAT Consultants in Dubai, UAE
Businesses engaged in the B2B supply of transportation services must check the applicability of UAE VAT on their services. Taxable persons should check the scenarios illustrated in this blog to determine whether their services are exempted from VAT or come under the standard rate of 5%. To navigate further challenges, businesses can consult with the best tax agents in Dubai such as Jitendra Chartered Accountants (JCA). JCA is one of the leading providers of VAT consultancy services in Dubai, UAE. Our tax agents in the UAE are registered with and approved by the Federal Tax Authority (FTA). We can provide robust solutions to all kinds of tax-related issues such as VAT return filing, VAT registration, VAT reconsideration etc. Tax agents in Dubai such as JCA will help you to,
- Ensure readiness for Ta Audit from FTA
- Proper legal compliance
- Stay up to date with recent changes in VAT and reforms