VAT on Transportation Services in the United Arab Emirates
Understanding the VAT applicability on the transportation services in the UAE is crucial for businesses as the service cut across a wide variety of sectors. Almost every industry find transportation as a vital part of their business, be it healthcare, education, or hospitality sector. The businesses need to know what aspects of the transportation services are zero-rated and what supplies are standard rated. The businesses need to know how the Federal Tax Authority (FTA) defines private transportation, public transportation, and other means of transportation to how the VAT rating applies to the transportation supplies. The expert assistance of reputed VAT consultants in Dubai, UAE would come in handy for the businesses for ensuring VAT compliance.
VAT Applicability on Means of Transportation
As per the UAE Cabinet Decision (52) of 2017 on the executive regulations of the Federal Decree-Law No. (8) of 2017 on VAT, zero-rating is applied to the supply of certain means of transport. The zero-rating, however, is subject to certain conditions.
The supply of an aircraft is zero-rated only if it is designed or modified for the commercial transportation of passengers or goods. Similarly, the supply of a ship or boat shall be zero-rated if it is developed for the purpose of commercial use. However, zero-rating won’t be applied for usage in recreation, pleasure, or sports in both cases. Businesses need to consult the best VAT consultants in Dubai to file for VAT registration.
VAT Applicability on Public & Private Transportation
The VAT Law specifies that the supply of a bus or train is zero-rated if it is designed or adapted for the purpose of public transportation of more than 10 passengers. The Federal Tax Authority (FTA) has issued a clarification on how to differentiate between public and private transportation services. The transportation services will be qualified for being considered as public transportation only if the service is used to transport all the passengers without any exception. It means that transportation services should not be restricted to individuals of certain sectors to be qualified as public transportation.
How the FTA Defines Public Transportation Service for VAT Purpose?
The FTA has mentioned certain factors by which it defines a bus or train as public transport. The bus or train service needs to meet the following standards to be considered as public transportation service for the purpose of VAT:
1. Facility for Payment
There should be a facility that lets the passengers pay for transportation. These facilities can be a payment booth, ticket scanner or device to take payment.
2. Branding on Accessibility by Public
Availability of branding either inside or outside the bus or train that advertises about the passenger service. The branding should indicate that the transportation service is open to all the public
3. Branding About Regulatory Authority
The bus or train should advertise the regulatory authority that controls and maintains the transportation service. For example, the buses and metro in Dubai have branding that indicates it is being regulated by the RTA.
How the FTA Defines Private Transport for VAT Purposes
The means of transportation that are used to transport specific individuals do not come under the ambit of public transportation. The buses or vehicles that are not open to all individuals without exception would be standard rated. The following are some of the private transportation services that are not eligible for zero-rating as per the FTA.
- Buses used to transport employees to and from the place of work
- Shuttle buses used to transport hotel guests from one place to another (malls, tourist attractions, etc.)
The vehicles that come under this definition are not open to all individuals. Such services restrict their use to certain groups of people and hence are not eligible for zero-rating.
VAT Rating on International Transportation Services
As per the UAE VAT Law, international transportation services are subject to a zero VAT rating. According to Clause 2 of Article 45 of the VAT Law, the international transport of passengers and goods which commence or end in the UAE, or passes through the UAE, will be zero-rated. As a result of this provision in the Law, any VAT incurred on costs directly related to such international transport services could be recovered in full, subject to the normal input tax recovery conditions.
VAT on Local Transportation of Passengers
The FTA has exempted the supply of local passenger transport from VAT. According to Clause 4 of Article 46 of the VAT Law and Article 45 of the Executive Regulations, the supply of local passenger transport is considered as exempt from VAT where the supply is of local passenger transport services in a qualifying means of transport by land, water or air from one place in the UAE to another place in the UAE.
Why Choose Jitendra Chartered Accountants?
Being a dynamic country throbbing with business people, professionals, and employee transportation is among the vibrant sectors in the UAE. Like all the other industries, the impact of VAT is evident on transportation services as well. However, more than two years after its introduction the VAT has definitely played its part in streamlining the economic regulations in the UAE. Every business and industry is required to ensure VAT compliance nowadays, for which the expert assistance of reputed VAT consultants in Dubai, UAE is required.