The supply of local passenger transport services is exempt when the service takes place within the UAE by way of a qualifying vehicle operating by land, air or sea, for example on a train, bus, taxi, tram, boat, or aircraft designed for passenger transport.
Examples include a taxi ride from one place to another; a trip on a bus, tram or train, an internal flight or a ferry boat, provided the transport is designed or adapted for the transport of passengers.
The exemption excludes services supplied to transport passengers by aircraft between two places within the UAE where if the transport is international carriage according to the definition in the Warsaw International Convention for the Unification of Certain Rules Relating to International Carriage by Air 1929. This is transport within the UAE that originates outside the GCC and the internal flight in the UAE is part of the international flight.
Also, services supplied as a pleasure trip involving sightseeing, catering aboard or general entertainment, are excluded from the exemption.
A word of warning: before deciding whether a supply is exempt or not, it is important that you fully read all the notes within the Agreement, the VAT Law, Regulations and any guidance issued by THE AUTHORITY. Some of the provisions are very detailed and some rules include a number of exceptions.
Remember also that zero-rating will always take priority over the exemption.
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