UAE VAT - Export of Services: Registration and Compliance Considerations

                                                                                              LISTEN TO THIS ARTICLE

1. VAT Registration Requirement in the UAE

• Under the UAE VAT law, businesses must register for VAT if their taxable supplies exceed the mandatory threshold of AED 375,000 annually.
  
  
• Voluntary registration is allowed if taxable supplies and expenses exceed AED 187,500 annually.
  
  
• Failure to register when required can result in penalties from the Federal Tax Authority (FTA).

2. Export of Services and VAT Treatment

As per Article 31 of the UAE VAT Executive Regulations, export of services (services supplied to recipients outside the UAE) may be zero-rated, provided certain conditions are met:The recipient is outside the UAE at the time the service is performed.The recipient does not have a business presence in the UAE.The services are not directly related to real estate in the UAE or supplied to a person within the UAE.

3. Non-Registration and Its Implications

Companies that are exporting services or providing services outside the UAE but have neither registered for VAT nor obtained an exception may face the following implications:

a) Non-Compliance with VAT Law

• If the company’s total taxable turnover exceeds the AED 375,000 threshold and they fail to register, they are in violation of the VAT law.
  
  
• The FTA may impose penalties, including: AED 10,000 for late registration. Administrative penalties for unpaid VAT. Possible interest on outstanding VAT liabilities.

b) Inability to Claim Input VAT

• VAT-registered businesses can claim input VAT credits on expenses incurred in the UAE (e.g., office rent, utilities, professional fees, etc.).
  
  
• If a company remains unregistered, it cannot recover VAT paid on its UAE-based costs, increasing overall business expenses.

c) Contractual and Commercial Risks

• Foreign clients often require proper VAT invoices or confirmation of VAT compliance.
  
  
• Non-registration might lead to commercial disadvantages, such as potential contract rejections or client concerns about tax compliance.

d) Tax Audit and Potential Backdated VAT Liabilities

If the FTA discovers that a company exceeded the VAT threshold but failed to register, they may: Enforce backdated VAT registration. Require the company to pay VAT retroactively, along with fines and penalties.

4. Exceptions and Exemptions

• Some businesses may apply for an exemption from VAT registration if their supplies are solely zero-rated (e.g., export of services that meet the zero-rating conditions).
  
  
• However, an official VAT exception must be obtained from the FTA.
  
  
• Without this exemption, the company is still required to register if its taxable turnover exceeds AED 375,000.

5. Recommendations for Companies Exporting Services

✔ Assess VAT Registration Requirement: Regularly review turnover to determine if mandatory registration is required.

✔ Apply for a VAT Exception (if eligible): If the company solely makes zero-rated supplies, apply for an official exemption.

✔ Comply with Documentation Requirements: Maintain proper records, including contracts with non-UAE clients, evidence of business location, and proof of service delivery outside the UAE.

✔ Consult a Tax Advisor: Seek professional guidance to ensure compliance with UAE VAT laws and avoid penalties.

Disclaimer: Content posted is for informational and knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.