How VAT is Applicable on Shipping & Logistics Industry in the UAE
Understanding the VAT impact on the Shipping and logistics industry is crucial as the UAE holds the reputation of being a leading multi-modal transit and re-export hub. The UAE cater to the logistics demand from major markets including Europe, Asia, Africa, the US, and other countries in the Middle East. The UAE has beaten stiff competition from other GCC countries due to the development of stronger infrastructure in the form of the Dubai logistics Corridor, modernization of seaports and airports, development of JAFZA, and the expansion of airports.
The VAT implication for the Shipping and Logistics industry is a fairly complex one, which is dependent upon various factors including the mode of transport and the place of supply of the goods as per the UAE VAT Law.
The provisions under the UAE VAT Law covering the transport-related services define the VAT treatment on the Shipping and Logistics industry in the UAE. As per the Article (1) of the UAE VAT Law, the transport-related services consist of
- Packaging and securing cargo
- Preparation of Customs documents
- Container management
- Loading, unloading, storing and moving of Goods
- Other related services necessary to carry out transportation
Based on the means by which the transportation is undertaken (by sea, air or road) and the place of supply (whether the transportation is within the UAE or internationally), the VAT on the logistics sector is rated as zero, standard or out of scope.
VAT Rating on Transportation of Goods in Shipping Industry in the UAE
1. VAT on International Transportation of Goods
Any international transportation of goods that begins or ends in the UAE is considered as a zero-rate supply by the FTA. The transportation is still a zero-rated supply if the vessel passes through the UAE during the process.
2. VAT on Local Transportation of Goods
If the transportation of goods happens within the UAE, then it doesn’t qualify for the zero-rating. The movement of the vessel within the UAE would carry the standard VAT rate of 5%.
3. Local Movement of Vessel as Part of International Transportation
In some cases, the vessel may carry out coastal runs or local movement of goods within the UAE as part of international transportation. Such local movements as part of international transportation will also be qualified for zero-rating. The businesses need to have documents that support the claim that the movement was carried as part of international transportation.
4. VAT Rate on the Vessel used for Transportation
A vessel that is used for the commercial purpose of transporting goods carries the zero VAT rating. According to Article No. 34 of the VAT Law, zero-rating applies to a supply of a ship that is designed or adapted for use for commercial purposes but it should not be designed or modified for recreation, pleasure, or sports.
5. VAT Rate of Cross-border Trade
Cross-border trade or high seas sales involve the transportation of goods outside the UAE without the involvement of the UAE port. For instance, consider the export of goods from the US to be delivered to KSA. The vessel or container operators carry out the cross-border trade and send the invoice to a customer who may be based in the UAE. Since the place of origin of the supply is outside the UAE the cross-border trade is regarded as outside the scope of VAT.
Tax Consideration for Means of as per the UAE VAT Law
Goods are transported through three ways of transportation: by air, sea and road. The choice of the means of transportation depends upon the volume of the cargo and the destination where the transportation ends. The following is a list of means of transportation and how the FTA defines the VAT rating on each of them.
1. Transportation through Air
As per the UAE VAT Law, the supply of an aircraft is zero-rated for the transportation of goods. The aircraft must be designed or adapted to be used for commercial transportation of passengers or goods and should not be designed for recreation, pleasure, or sports.
2. Transportation through Sea
A supply of ship, boat, or a floating structure is considered as a zero-rated supply if it is designed for commercial purposes. The ship should not be designed or modified for other purposes such as recreation, pleasure, or sports.
3. Transportation through Road
Just like other means of transportation mentioned above, the UAE VAT Law specifies how the VAT is applicable to the transportation of goods through road. Zero VAT rate is applicable on a bus or train designed or modified to be used for public transportation of 10 or more passengers.
Seek Help From VAT Consultants in the UAE
The companies operating in the shipping and logistics industry in the UAE need the expert assistance of qualified tax agents to ensure VAT compliance. The FTA has issued specific regulations regarding the transportation of goods and the VAT rating depends upon factors including the means of transport and place of supply. Determining the tax applicability based on these criteria is a fairly complex process and this is where a reputed VAT consultancy firm like the Jitendra Chartered Accountants (JCA) comes to the aid of the businesses. JCA assist the companies in ensuring VAT compliance through filing for VAT registration, VAT returns, and VAT deregistration. Failing to ensure VAT compliance may attract heavy fines from the FTA and the highly qualified tax agents of JCA can help the companies run their businesses by ensuring VAT compliance.