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Demystifying Zero-Rating of Exported Services: A Complete Guide for UAE Businesses

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Have you heard about the zero-rating scheme for exported services in the UAE? Do you want to learn more about how it works and how your business can benefit from it? If yes, then read on! 

What is Zero-Rating of Exported Services?

The UAE government has introduced a zero tax rate or zero-rating scheme for companies that provide certain services to overseas/foreign clients outside of the UAE. 

  • This means that instead of the standard 5% Value Added Tax (VAT), the rate of VAT can be reduced to 0% for exported services. 
  • By allowing a zero tax rate, companies in the UAE can export services without needing to add standard VAT.
  • As a result, UAE companies can be more competitive compared to firms in other countries who would still charge a positive VAT rate.

What Types of Services Qualify for Zero-Rating in the UAE?

There are some specific categories of services that can qualify for zero VAT rating when they are supplied to a customer abroad as per UAE tax laws and regulations. These services include:

  • Consultancy services – business, management, HR, marketing etc.
  • Marketing services – market research, advertising, PR, promotions etc.  
  • Licensing services – allowing foreign clients to access patents, trademarks, copyrights held in the UAE
  • Broadcasting services – transmitting TV/radio/media content abroad
  • Telecommunication services – providing telecom network access, installing infrastructure etc.

So if your company offers any of these services to overseas clients outside of the UAE, you can benefit from the zero VAT rating scheme.

What are the Benefits of Zero Rating Exported Services?

There are some great advantages and incentives to zero rating exported services, such as:

1. Improved Competitiveness

  • Zero rating allows you to invoice foreign clients without adding any VAT. 
  • This makes your rates, fees and overall pricing more competitive compared to companies in other countries who would still charge VAT.

2. Higher Profit Margins

  • Removing the 5% VAT allows you to enjoy higher profit margins on services provided to overseas customers. 
  • Essentially, you get to retain the additional VAT component that would otherwise have gone to the government.

3. Tax Incentive

Criteria to Fulfill for Zero-Rating of Exported Services

To qualify for zero-rating of exported services, companies in the UAE must satisfy certain conditions and eligibility criteria laid out by the Federal Tax Authority (FTA):

Location of Customer

  • The services must be provided to a customer who is located outside the UAE. 
  • Sufficient proof must be maintained about the export of services out of the UAE.

Nature of Service 

  • Only the specified categories of services mentioned earlier qualify for zero-rating when they are supplied outside the UAE. 
  • Any other categories of services will still attract the standard 5% VAT rate.

Documents Needed

  • Proper invoices, contracts, agreements, and documentation must be maintained showing location of client overseas, nature of service provided, payments received in foreign currency etc.

Step-by-Step Process for Zero-Rating Exported Services 

Follow this step-by-step process in order to start zero rating your exported services:

  • Step 1: Determine if the services you supply to overseas clients qualify as per UAE VAT laws.
  • Step 2: Gather adequate documentation to prove the services are exported outside the UAE. 
  • Step 3: Apply to the Federal Tax Authority (FTA) providing relevant documents and get prior approval from them for zero rating.
  • Step 4: Ensure any invoices issued to foreign clients are VAT exclusive i.e. show 0% VAT and are marked as zero-rated supplies.
  • Step 5: File regular VAT returns showing details of zero-rated exported services and keep all documents for 5 years.

Conclusion

I hope this detailed guide was useful in clarifying how zero rating of exported services works in the UAE. The scheme aims to boost exports and competitiveness of UAE service providers in the international market.

By meeting the eligibility criteria set by the FTA, companies can supply specified services to overseas clients without charging VAT. This improves profit margins and incentives.

FAQs

Can we zero rate services provided to UAE free zones or mainland?

No. Only exports made to overseas clients abroad qualify. Local UAE supplies do not qualify, even if to UAE free zones.

What documents do we need from overseas clients to prove export?

You would need contracts, purchase orders, proof of payment in foreign currency, etc. to show the client is based abroad.

Can tax invoices be issued to foreign clients in digital format?

Yes, e-invoices are permitted subject to specific requirements laid out by the Federal Tax Authority.

If a service qualifies, can we zero rate our entire invoice value?

No, only the value of the specific exported service can be zero rated, not other ineligible services.

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Pranav Modi

Mr. Pranav Modi, CA is supported by 12+ years of Consulting, Auditing and Accounting practice across diverse sectors.

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