For a “zero-rated service,” the government does not tax its retail sale but allows credits for the value-added tax (VAT) paid on inputs. This reduces the price of services.
Article 31(1)(a)(1) of Cabinet Decision prescribes rules for the zero-rating of certain exports of services. The Zero-rating rules are further supplemented by additional rules and conditions in Article 31(2)2 and (3) of the Executive Regulation.
In accordance with Article 31(1)(a)(1) of the Executive Regulation, a supply may only be zero-rated where the recipient of services does not have a place of residence in an Implementing State and is outside the UAE at the time the services are performed.
“In determining whether these conditions are met, the supplier must consider all available facts in order to identify the residency status and the location of the recipient. Where the recipient has multiple establishments, the supplier must also determine which establishment of the recipient is most closely related to the supply,” the guidelines said.
The guidelines primarily intended to explain the FTA’s interpretation of domestic VAT law relating to the residency and location of the recipient of services and specifically the conditions that must be satisfied in order for a supply of services cross-border to be zero-rated.
The UAE government clarified that in order to ensure that the zero-rated treatment is not applied incorrectly, the supplier should consider all available facts and seek, if necessary, additional information from the recipient in order to identify the recipient’s residency status and location at the time the services are performed. If the supplier is not able to establish the necessary facts to ascertain if the zero-rating conditions are met, the supplier must standard-rate the supply.Subscribe Taxscan AdFree to view the Judgment