How we can go wrong in determining VAT Treatment

Determining accurate VAT treatment is crucial in every business transaction hence; indispensable care is significant to determine the VAT treatment even if the organization is operating on a small or medium scale.

During my professional career, I came across various scenarios where business owners neglect to take professional advice related to VAT treatment and depend on what similar industry business is following which ends up in an FTA Audit, which obviously concludes with a massive penalty.

Here, I would share a VAT Treatment followed by business entities in the industry.

Introduction

On concurrent reading of Section 2 of Article 45 of the Decree-Law

“International transport of passengers and Goods which starts or ends in the State or passes through its territory, including Transport-related Services. “

And Section 1 of Article 33 of the Executive Regulation

“The supply of international transportation Services for Passengers and Goods and Transport-related Services shall be subject to the zero rates in the following cases:

 a. Transporting passengers or Goods from a place in the State to a place outside the State.

b. Transporting passengers or Goods from a place outside the State to a place in the State.

c. Transporting passengers from a place in the State to another place in the State by sea or air or land as part of a supply of international transport of those passengers if either or both the first place of departure, or the final place of destination, is outside the State.

d. Transporting Goods from a place in the State to another place in the State if the Services are supplied as part, or for the purpose, of the supply of Services of transporting Goods either from a place in the State to a place outside the State or from a place outside the State to a place in the State. “

 This decree implies that Transportation of goods or passengers from/to the state to/from a place outside the state, for such services of transportation, VAT is applicable at 0%. As well law considered “Transport related services” that will fall under the 0% VAT.

Referring to Sub Section (d) Section 1 of Article 33 of Executive Regulation “The supply of transportation service from/to Port in U.A.E to/from U.A.E mainland is treated as Standard-Rated Supply (5%).”

The falsification followed by interpreting Sub Section (d) Section 33 is that the transportation from port to mainland or vice versa is a part of international transport since the goods arriving from the port or departing from the port are in International transit. Hence, subject to Zero Rate.

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