Clarification on Export of Services
There is a rising concern for business especially for those providing consultancy services when to apply zero rate to the export of services and how to do so while taking into consideration the place of supply of your services. VAT Laws have defined the services which are to be considered as zero rated and which are to be considered exempt. However service providers often find themselves in turmoil when dealing with clients that are outside the UAE which might or might not have a presence in the UAE.
Clarification has put forth by FTA recently regarding the Zero rating of services based on recipient enjoying the services from outside the UAE with respect to the residency and location of recipient.
Two conditions that need to be met before zero rating the services are:
Firstly, the recipient should not have a place of residence in UAE. Place of residence means place where you are legally established or a place where a business conducts its business and sufficient amount of human and technology resources exists. If the place of residence is not related to the supply, that place is excluded as the place of residence.
Secondly, the recipient of the service should be outside the UAE at the time the services are performed. The location of the recipient before or after the service is performed can be excluded. The existing law laid out that a person can be considered being outside the UAE if his/her presence in the UAE is less than a month or the presence is not directly connected with the supply. In the recent amendment it changes that a person can be considered being outside UAE only if his/her presence in UAE is short term i.e. less than a month and it isn’t effectively connected with the supply.
To consider a residency status and the location of the recipient, certain criteria needed to be looked upon like the recipient according to the contract, entity enjoying the service, entity receiving the invoice, instructions to supplier, establishment which the supply relates to [If there’s more than one establishment].
One of the examples that was put out in FTA Clarification in which the zero rating is to be considered is,
UK entity contracting UAE legal firm for litigation services:
UK Entity representative coming to UAE for a conference which has nothing to do with the ongoing litigation will not impact the zero rating of litigation services and still can be considered as a zero rate supply.
Zero rating is exception to default standard rating, hence supplier has to ensure all the conditions are met prior to treatment as Zero rating. Horizon Biz Consultancy is clearly well placed to assist you and make sure all the conditions are met for the proper treatment with respective of VAT. We have wealth of local and international experience in assisting clients in precisely this area of the VAT law.
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FTA clarification on Transfer of a business as a going concern