VAT treatment for UAE Freezone company receiving services from abroad - Reverse Charge question

[PhantomOf ThePits]

Hi,

got a question regarding VAT for a UAE Freezone company in services sector.

I understand that if the UAE Freezone company provides services only to outside GCC (basically exports service) and is above the 365,000 AED revenue/year it has two options:
1) Either file 0 VAT return quarterly
or
2) apply for VAT exemption


What I dont understand yet is how is VAT treated for the UAE Freezone company receiving services (importing services) from EU for example.
In the EU Country the invoice will be 0% EU VAT as service is 'exported'.

However, how would it be for the UAE Freezone company which exports services above 365,000 AED revenue/year but doesnt import services above 365k AED/yr, would it need to pay 5% UAE VAT because of reverse charge mechanism?

Thank you for your opinion/experience on this topic

Last edited: Oct 26, 2024

 

[Propeller]

PhantomOf ThePits said:
However, how would it be for the UAE Freezone company which exports services above 365,000 AED revenue/year but doesnt import services above 365k AED/yr, would it need to pay 5% UAE VAT because of reverse charge mechanism?
Click to expand...

My immediate answer is YES, the company should pay 5% VAT on the exported goods, but I would ask a local accountant for a more precise answer.

 

[PhantomOf ThePits]

Propeller said:
My immediate answer is YES, the company should pay 5% VAT on the exported goods, but I would ask a local accountant for a more precise answer.
Click to expand...

thank you for your reply -- problem is that local Tax guys have opposing opinions

The UAE Freezone Services company has VAT Exempt status (it only provides services outside GCC) and applied for that status above 365k AED/yr turnover.
Meaning it provides services TO outside UAE with 0% VAT and doesnt need to fill out quarterly VAT returns as it has VAT Exempt status

But its not clear how to treat the Reverse Charge in the UAE if the UAE Freezone company receives services FROM abroad..

 

[openlaw]

UAE does not have reverse VAT, neither with UAE, neither with other countries.

Moreover 0% VAT and Vat exempt are not options, these are different regimes.

Well and for importing services it's definitely under general rule of place of supply: you are customer then your place is the place of supply. If company is in UAE even in free zone (and even it's designated), then UAE is a place and you should have VAT reporting this supply (subject to 375k rule, sure).

 

[PhantomOf ThePits]

openlaw said:
UAE does not have reverse VAT, neither with UAE, neither with other countries.

Moreover 0% VAT and Vat exempt are not options, these are different regimes.

Well and for importing services it's definitely under general rule of place of supply: you are customer then your place is the place of supply. If company is in UAE even in free zone (and even it's designated), then UAE is a place and you should have VAT reporting this supply (subject to 375k rule, sure).
Click to expand...

thank you @openlaw very helpful

Someone told me VAT reporting between UAE Freezone companies is exempt, is that true or also subject to the 375k rule?