The transport of goods and passengers outside the UAE is one of the mandatory categories subject to VAT zero rating as per the dispositions of the Agreement.
The international transport of passengers and related goods and services, including those for consumption aboard; certain supplies of air, maritime and land transport and related goods and services; the supply of aeroplanes and vessels designated for rescue or assistance by land or sea are VAT zero-rated by the disposition of Art. 45, items 2 to 7 of the VAT Law.
Passenger air transport services inside the UAE are VAT zero-rated if the transport is considered “international” by article (1) of the Warsaw Convention for the Unification of Certain Rules Relating to International Carriage by Air 1929.
The VAT Law establishes the conditions for the definition of international passenger and freight transport services for VAT zero-rating as transports that
“begin end or pass through the territories of the UAE”. Also, the VAT Law allows the zero-rating of services provided in the connection with international passenger and freight transport services.
Art. 33 of the Regulations provides that the international transport services of passengers and goods are VAT zero-rated if passengers and goods are transported from the UAE to outside the UAE or from a place outside the UAE to a place inside the UAE; the transport of passengers by sea or air or land taking place internally to the UAE is part of a transport services starting from a place outside the UAE or ending in a place outside the UAE. The transport of goods within the UAE is also VAT zero-rated if the services provided in the UAE are part of the transportation from a place outside the UAE or to a place outside the UAE.
Arts. 34 and 35 of the Regulations establish the conditions for VAT zero-rating of the supply of air, maritime and land means of transportation used to transport passengers or goods; and goods and services supplied in connection with those.
Further to those provisions, the VAT zero rating applies to the supply of an aircraft, ship, boat or floating structure that is designed or adapted to be used for commercial transportation of passengers or goods and which is not designed or adapted for recreation, pleasure or sports.
THE AUTHORITY has issued a Public Clarification on “Public Transportation”
(VATP007) in which the definition of public transportation is outlined. VAT Zero-rating also applies to a supply of a bus or train designed or adapted for public transportation of 10 or more passengers. However, vehicles designed to transport a specific category of individuals, e.g. school students, do not qualify for a VAT zero rating. With regards to goods and services supplied in connection to the VAT zero-rated means of transport above, Art. 35 of the Regulations, establishes that the zero-rating applies to goods and services used in operating. repairing, renovating, modifying, maintaining or converting those means of transport.
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