VAT on Services is a consumption tax applied at each stage of the supply chain, but ultimately borne by the end consumer. The UAE implemented VAT on January 1, 2018, at a standard rate of 5% on most goods and services.
Some supplies, however, fall into special categories:
- Zero-rated (0%): For example, exports, certain international services, and sectors like education or healthcare.
- Exempt: Financial services, residential leases, bare land, and local passenger transport are typically exempt.
When a supply is zero-rated, a business can recover input VAT (VAT paid on purchases related to providing that service). In contrast, with exempt supplies, input Value Added Tax generally cannot be reclaimed.
Domestic vs. International Service Supplies
- Domestic services (i.e., provided within the UAE) are taxed at 5%.
- International services (i.e., provided to clients outside the UAE) may be zero-rated or out-of-scope, depending on the Value Added Tax rules, especially the “place of supply” principle.
The “Place of Supply”: Why It Matters
The “place of supply” determines where a service is considered to have been provided for Value Added Tax purposes. This is a critical factor in deciding whether Value Added Tax applies — and at what rate.
- Under Article 29 of the UAE VAT law (Federal Decree-Law No. 8/2017), the default rule is that the place of supply is where the supplier is based.
- However, Article 30 provides important exceptions: certain types of services may have a different place of supply.
Special Cases Under Article 30
Here are some key exceptions where the “place of supply” switches to a different country:
- B2B services: If provided to a non-UAE VAT-registered business, the place of supply may be where the recipient is located.
- Services tied to goods (e.g., installation): The place is where the service is performed.
- Transport leasing: Based on where the transport asset is delivered.
- Hospitality and catering: The place is where the service actually takes place.
- Cultural, educational, artistic, or sporting events: The place is where the event is held. Real estate services: Based on where the property is located.
- Transport services: Place of supply is where the transport begins.
Telecom or electronic services: Place is where the service is used or enjoyed.
VAT on Services for Overseas Clients
If your UAE business provides services to overseas clients, Value Added Tax treatment depends largely on how the “place of supply” rules apply. There are two main possibilities:
- Zero-Rated Services (0%)
- The service is provided to a client who is outside the UAE, or
- The service is actually performed outside the UAE.
- To qualify, services must not be tied to UAE real estate or physically located assets. Example services: consulting, remote IT support, design work, or training performed abroad. Even though VAT is charged at 0%, you can still recover input Value Added Tax on related costs.
- The service is provided to a client who is outside the UAE, or
- Out-of-Scope Services
- These services are not subject to UAE VAT at all.
- Applies when both the supplier and the recipient are outside the UAE for VAT purposes.
- Such transactions are not reported in UAE VAT returns.
- These services are not subject to UAE VAT at all.
When You Still Need to Charge VAT (5%)
Even if your client is abroad, there are cases where you must apply the standard 5% Value Added Tax, because the place of supply shifts to the UAE:
- Services linked to UAE real estate, such as property management or leasing.
- Services for events held in the UAE, even if the customer is foreign.
- Services used or enjoyed within the UAE, like telecom or electronic services consumed in the UAE.
Conditions for Applying the 0% Rate
To legally apply the zero rate on exported services, you must ensure:
- Client’s Location
- The client is genuinely outside the UAE (no fixed place of business in the UAE)
- They must not have a UAE presence related to the service.
- Their physical location during service provision should be outside the UAE (or absence from UAE must be for more than just a short visit).
- No Connection to UAE Assets
- The service must not directly involve UAE property or movable assets located in the UAE.
- Documentation
- Maintain proper proof: client’s address/license outside UAE, contracts, and evidence showing where service was performed.
Special Scenarios & Exceptions
- Services related to UAE property: Always taxed at 5% if they involve real estate in the UAE.
- Cultural or event-based services: If an event is in the UAE, VAT applies even for foreign clients.
- Used-in-UAE services: For example, telecom or digital services that are consumed in the UAE by a foreign business or person → 5% VAT may apply.
How My Taxman Can Help
Navigating VAT for cross-border services can be challenging. At My Taxman, our VAT experts:
- Advise on whether your service qualifies for zero rating or is out-of-scope
- Help you interpret “place of supply” rules based on your business model
- Support you in setting up the right contracts and documentation
Assist with VAT return submissions and ensure compliance
Conclusion
Understanding Value Added Tax on overseas services provided outside the UAE is essential for businesses that serve international clients. By applying the correct place-of-supply rules and maintaining proper documentation, you can stay compliant while optimizing your tax position.
Partner with My Taxman today for expert Value Added Tax advice and accurate guidance tailored to your business needs.
FAQS
1. Do I need to charge Value Added Tax for services provided to clients outside the UAE?
If your services are provided to clients located outside the UAE and are not connected to UAE property or assets, they may qualify for zero-rated Value Added Tax (0%). However, proper documentation proving the client’s foreign location is required to apply the zero rate.
2. What is the difference between zero-rated and out-of-scope services in UAE Value Added Tax?
Zero-rated services are taxable at 0%, allowing you to claim input Value Added Tax.
Out-of-scope services are completely outside the UAE VAT system and do not need to be reported in VAT returns. This usually applies when both the supplier and the client are outside the UAE.
3. How can I determine the place of supply for international services?
The place of supply is usually where the supplier is based. However, for services provided to a business outside the UAE, the place of supply may shift to the client’s location. This determines whether VAT should be applied, zero-rated, or considered out of scope.
4. When must UAE businesses still charge 5% Value Added Tax on overseas services?
Even if your client is abroad, 5% Value Added Tax must be applied if the service is linked to UAE real estate, events held in the UAE, or services consumed within the UAE, such as telecom or digital services.
5. What documents are required to apply 0% Value Added Tax on exported services?
You must maintain:
The client’s trade license or proof of address outside the UAE
Contracts and invoices showing the nature of service
Evidence that the service was performed or used outside the UAE
Proper documentation helps validate your zero-rated VAT claim during an FTA audit.
