VAT q&a: 'Is my service zero-rated if my customers live outside the UAE?'
The Dubai resident owns an exhibition services company, which rents out stands to overseas companies
I am part of an exhibition services company and we rent exhibition stands to overseas companies. The exhibitions are held in the UAE. Our customers usually do not have a resident company in the UAE, but one or more of their employees will attend the exhibition. Can you confirm if this is zero-rated as my customer is resident outside of the UAE? PP, Dubai
To answer the question, the place of supply of your service must be determined, particularly whether it falls within the definition of an export of services as per the Decree Law and Executive Regulations. The basic rule for services is covered in Article 29 of the Decree Law, which says the place of supply is the supplier's residence. You then need to consider whether your supply is covered under any of the exceptions or special circumstances included in the legislation. When providing services to overseas customers, you may fall under the rules of Article 31 which allows zero-rating of certain services.
However, to be zero-rated several conditions must be met. The services should be supplied to a recipient who does not have a place of residence in an implementing state and who is outside that state at the time the services are performed. An individual can be considered “outside the state” if they only have a short-term presence of less than a month, or the only presence they have is not effectively connected with the supply.
In your case, while your customer might not have a place of residence in the UAE, they are receiving your service while in the UAE because they are attending the exhibition. I have seen many interpret this rule incorrectly, assuming that because their customer is in the UAE for less than a month, they can still treat this as a zero-rated export. The one-month rule is only relevant if their presence in the UAE is not connected with the supply of your services. If team members from your overseas clients were in the UAE for the exhibition, they would be taxed at the standard rate of 5 per cent.
My query regards the location of taxable supplies and reporting these in my VAT return. We are a Dubai Economy company and by mistake we split our revenue according to the location of our customers. I now know this is wrong and all my sales should have been reported as Dubai. A colleague advised that we need to submit a voluntary disclosure to correct this. Is this correct? NC, Dubai
The Federal Tax Authority issued a specific Voluntary Disclosure User Guide and that offers two scenarios where a voluntary disclosure (VD) must be submitted and two where it may be submitted. You must submit a VD for a filed tax return if the calculation of payable tax is less than it should have been by Dh10,000 or more. For amounts less than this, you do not need to submit a VD and can just correct the error in the next return. However, if you have deregistered and will not be making another return, you must file a VD regardless of the amount of underpaid VAT.
The second case where you must submit a VD is if you have applied for a VAT refund that is more than you are entitled to. The user guide does not have a minimum monetary limit for over claiming refunds. As the error you have made does not impact on the amount of VAT payable, write to the FTA explaining what has happened — making it clear that the amount of tax paid is unaffected — and see what action they require you to take. They may want you to make a VD or they may ask you to make a cumulative adjustment on your next VAT return. Making a VD comes with an automatic penalty of Dh10,000, so it is definitely worth taking advice from the FTA before making an optional VD.
Lisa Martin, a chartered accountant with more than 20 years of commercial finance experience, is the founder of accounting, auditing and VAT consultancy, The Counting House. Email any VAT queries to email@example.com
Updated: October 14, 2019 12:05 PM