Logistics is the flow of goods between a point of origin to consumption. A logistics and shipping company plans to manage and control the movement of goods and services within a supply chain. Just like other industrial sectors, shipping and logistics are also treated as a business, thus has specific VAT implications.
In terms of mobility and transport, the UAE provides accessible trade routes via sea and airways to different nations because it has well-connected sea and air routes. The majority of inbound and outbound transportation in the UAE is treated as exempt or zero-rated. At the same time, some transport is subject to a standard rate of VAT at 5%.
Different Parties in the Shipping and Logistic Industry
Shipping and Logistics include different parties as follows:
– Shipper
– Consigner
– Consignee
– Ports
– Container Operator
– Transport Operator
– Non-Vessel Operating Common Carrier
– Freight Forwarder
– Third-party Logistics
VAT Provisions on Shipping and Logistics in UAE
VAT was first implemented in the UAE from January 1st, 2020. According to Article (1) of the UAE VAT law, transport services are defined as:
“Transport-related Services: Shipment, packaging and securing cargo, preparation of Customs documents, container management, loading, unloading, storing, and moving of Goods, or any other closely related services or services that are necessary to conduct transportation services.”
Similarly, according to Article (30) of UAE VAT Law, the place of supply is where the transportation starts. The Executive Regulation shall determine the place of supply.
Zero-Rated Supplies
According to the Article (45) of UAE VAT Law, the following is treated as zero-rated supply.
“The international transport of passengers and goods which starts or ends in the State of passes through its territory, including also services related to such transport is treated as zero-rated supply.”
Similarly, the following Goods and Services will be treated as zero-rated if:
a) The Goods are supplied for consumption or sale on a ship or aircraft.
b) The services supplied during transportation services.
c) The services of insurance for the transport of passengers.
If you have any misunderstanding about the transportation of goods and zero-rated supplies, make sure to contact the best VAT consultancy in Dubai for more information. These VAT consultants can provide you detailed information about different goods and their treatment of VAT. For your ease, below, we have summarized the various scenarios of VAT in UAE:
|
Service |
Tax Rate |
|
Local transport of goods |
5% |
|
Local transport of passengers |
Exempt |
|
Local transport of passengers for pleasure etc. |
5% |
|
Inbound and outbound transport of passengers and goods (including intra-GCC transport) |
0% |
|
Transport originating and terminating outside UAE |
Outside scope of VAT |
|
Transport for local transportation of goods |
5% |
|
Local transport for the purpose of inbound and outbound transportation. |
0% |
VAT Implications for Different Players in Shipping and Logistics
Here is a brief account of VAT implications in shipping and logistics for different parties.
1. Vessel Owner
The vessel owner is the company or entity that owns the ship. As discussed above, international transportation of goods starting and ending in the UAE qualify as zero-rated. It also includes transportation that is passing through the UAE. If the vessel takes part in the local movement as part of its international journey, then this will also qualify as zero-rated. VAT is imposed on vessel handling fees and fees incurred at the ports.
2. Container Operator
Air and water transport mostly takes place in containers. Container operators manage the movement of cargo containers from vessels to transportation vehicles. VAT implications for cargo container operators are similar to the vessel owners. Some costs that need to include taxability on ocean freight, transport-related costs, washing, repairs and cleaning costs, etc. Services may not qualify as zero-rated if it takes place in the UAE.
3. Freight Forwarding
The Freight Forwarder is responsible for arranging the transportation of goods from one location to another. This person is responsible for arranging the entire process of shipment, starting from picking up goods from the shipper’s location and delivering them to their intended destination. Freight forwarding also includes:
– Transportation of goods door to door, port to door, and port to port
– Clearance and delivery
– Customs documentation
– Warehousing
– Packaging etc.
In the case of freight forwarding, terminal handling charges and customs charges are treated as zero-rated. Similarly, if freight forwarder undertakes independent clearance, then it will be regarded as zero-rated if cargo is moved internationally. However, if transportation is being conducted from one warehouse to another in the UAE, then it will not be considered as zero-rated and will be taxable.
4. Cross-border Trade
Under cross-border trade, if transportation originates outside UAE, then the supply of goods will also be treated as outside UAE and regarded as out of scope. For more details and to avoid penalties, consider getting in touch with the best VAT consultancy in Dubai for an understanding of VAT implications that may apply to your business.
Get VAT Consultancy and Ensure Compliance
Understanding VAT implications on the Shipping and Logistics sector is crucial because UAE is a leasing multi-modal transit hub for the international world. The UAE ports cater to logistic demands from some of the biggest global markets, including Europe, USA, Africa, and Asia. If a shipping and logistics company is found doing business against the FTA regulations, it will lead to penal consequences and termination of business licenses. So, make sure to get VAT Consultancy in UAE to understand the VAT implications on the shipping and logistics, including international and local transport of goods. It will help make sure that your business is complying with VAT in UAE.
