VAT on export of services

CONDITIONS FOR ZERO RATED EXPORT 

  • The Services are supplied to a Recipient of Services who does not have a Place of Residence in an Implementing State and who is outside the State at the time the Services are performed.
  • A person shall be considered as being “outside the State” if they only have a short-term presence in the State of less than a month and the presence is not effectively connected with the supply.

Note:

  • In determining whether these conditions are met, the supplier must consider all available facts in order to identify the residency status and the location of the recipient.
  • Where the recipient has multiple establishments, the supplier must also determine which establishment of the recipient is most closely related to the supply. 

PLACE OF RESIDENCE IN UAE 

  • A “place of establishment”, being the place where the recipient is legally established pursuant to the decision of its establishment, in which significant management decisions are taken or central management functions are conducted; or
  • A “fixed establishment”, being any fixed place of business in which the recipient conducts business regularly or permanently and where sufficient human and technology resources exist to enable the recipient to supply or acquire goods or services, including the recipient’s branches.

Note:

  • The supply of services made by the supplier may be received, to some degree, by both the place of establishment and the fixed establishment. In such a case, the supplier will need to identify which establishment is most closely related to receiving the supply by considering the facts of each case objectively.
  • The following factors should be taken into consideration:
  1. Which establishment is the contractual recipient of the supply;
  2. Which establishment is actually benefiting from the supply;
  3. Which establishment will receive the invoice and make payment for the supply;
  4. Which establishment provides instructions to the supplier; and
  5. Whether the services are related to business being carried on by the recipient through an establishment in a particular country.
  • It should be noted that where a person does not have a place of establishment or a fixed establishment in any country (for example, a natural person), then the place of residence of the person is the state in which the usual place of residence of that person is located.
  • Where a recipient has a number of establishments in different countries, the place of residence of that recipient should be considered to be the country in which the recipient’s place of establishment or fixed establishment most closely related to the supply of services being made is located.

Example:

  1. A recipient of services may have a head office (i.e. a place of establishment) outside the UAE and a branch (i.e. a fixed establishment) in the UAE. If the services provided by the UAE supplier relate solely to the activities of the head office and do not involve the UAE branch, then the head office would be considered the establishment most closely related to the supply. As a consequence, the place of residence of the recipient of services would be the country where the head office is located.
  1. If a UAE supplier makes a supply of services to the UAE branch of an overseas head office and the services will be used solely for the purposes of the branch, then the branch would be the establishment most closely related to the supply. As a result, the recipient would be treated as having the place of residence in the UAE, therefore preventing the supply from being zero-rated.

LOCATION OF THE RECIPIENT 

  • The location of the recipient should be determined “at the time when the services are performed” requires consideration of the nature of the services supplied, and the period or duration during which the services are performed by the supplier and consumed by the recipient.
  • Only the physical presence of the recipient during the period or periods in which the supplier performs services and the recipient consumes them needs to be taken into account; the location of the recipient before or after the services are performed and consumed should not be taken into account for the purposes of this condition.

Note:

  1. Where services are such that they are continuously performed and consumed for a duration of time, then any presence of the recipient during commencement, throughout, or during completion of the service in the UAE would result in the recipient being treated as being within the UAE “at the time the services are performed during completion of the service in the UAE would result in the recipient being treated as being within the UAE “at the time the services are performed.
  2. If the services are of a nature that they are performed and consumed at the time that they are completed, then the location of the recipient at the time of completion of the services will determine whether the recipient is outside or inside the UAE at the time the services are performed.
  3. It should be noted that where the recipient has multiple establishments, the supplier should only take into account the establishment of the recipient which is most closely related to the supply being made in determining whether the recipient is outside or inside the UAE at the time the services are performed.
  4. A non-resident recipient of services (including a recipient which may already have a UAE establishment) may lose the ability to receive a zero-rated supply where they create a temporary presence in the UAE at the time the services are performed, which relates to the supply being made.

For example, where a non-resident recipient of legal services relating to some arbitration sends its representative to the UAE to be present during the hearing, the law firm making the supply would not be able to zero-rate the supply of the services relating to the arbitration process during which the client was present in the UAE – since the non-resident client, through its representative, was physically present in the UAE at the time the services were performed by the law firm.

CONCLUSION

Therefore, in order to ensure that the zero-rated treatment is not applied incorrectly, the supplier should consider all available facts and seek, if necessary, additional information from the recipient in order to identify the recipient’s residency status and location at the time the services are performed. If the supplier is not able to establish the necessary facts to ascertain if the zero-rating conditions are met, the supplier must standard-rate the supply.

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