FTA has issued cabinet decision No. 88 of 2021 to update the provisions related to specific Zones stipulated in Article 51 of the executive regulation of Federal Decree-law No. 8 of 2017 on value-added tax by inserting additional sub-clauses to clause five and adding a new clause 7 with an effective date of 30 October 2021. These modifications clarify components of products and services within the same specific zone, as well as the movement of items from a designated area to within the state.
Customs Incoterms are crucial in evaluating if VAT is applicable to items in a specific industry. Incoterms are a set of terms that govern the transportation of products between a buyer and a seller, such as Ex-works, DDP (Delivery Duty Paid), and many others. These Incoterms define the extent to which a product’s risk and identity can be passed to the buyer.
There was a lack of clarity on how resources from the precise zone to the UAE mainland should be stated for UAE VAT purposes because UAE VAT regulation no longer connects with these custom Incoterms.
Evaluation of Article 51 (5) (c) – When items are moved from a special zone to another part of the country, the dealer must preserve official confirmation that VAT was applied to the import.
The most recent change emphasizes that the location of delivery of products inside the country will no longer be taken into account for substances from a specific sector to the Mainland if the supplier retains genuine proof that VAT was applied during the import of the goods to the mainland.
However, if the provider fails to keep credible proof that VAT was applied at the time of import, the dealer may be liable to pay VAT at 5% for all components when goods are transported from the targeted region to the mainland UAE, and Incoterms will have no bearing on the VAT function.
As a result, if a sale is made on a DDP, Ex-works, or any other Incoterms basis, and the goods are placed within the mainland before the date of supply crystallizes, and the dealer fails to preserve reliable proof, the supply can be subject to VAT at 5%, and in a case where the buyer is responsible for clearing the products owned by the dealer at that point on his own TRN and a case where the buyer is responsible for clearing the products owned by the dealer at
Customers and providers may be forced to change their VAT return import fees. The entry tax credit can be used by suppliers in a certain region to recover VAT on a daily basis.
Analysis of Article 51 (5) (b) – When goods are added to an area outside of the country, the supplier must continue to provide industrial or authentic proof as well as customs documentation confirming that the goods have been removed from a specific sector.
The most recent modification emphasizes that, in the case of out-of-scope components, i.e. components from distinct Zones outside the UAE, businesses must now keep files to show that the delivery region is outside the kingdom. The supplier is required to keep legal or commercial proof of this.
The dealer is required to keep “official evidence” and “commercial evidence” for the purposes of the above-mentioned clause. Official proof includes files issued by the local Emirate Customs department in respect of products leaving the country with signed and stamped documents, while “business proof” includes Airway invoice, bill of lading, Consignment notice, and certificate of shielding.