The breadth of tax breaks needs to be carefully considered by the logistic service sector, whether it be Value Added Tax (VAT) or Corporate Tax. International transport is often zero-rated under UAE VAT laws, in accordance with best practises around the world. Whether it begins or ends in the UAE or simply passes through its territory, international transportation of people or products is zero-rated.
For foreign travel coming from a location outside the UAE, there is an intriguing ambiguity. Such transport services should not be subject to UAE VAT if the point of supply is outside the UAE. However, the logistics sector should determine whether these services are zero-rated or completely exempt from the VAT regime.
For foreign travel coming from a location outside the UAE, there is an intriguing ambiguity.
It is reasonable to assume that both foreign transportation and transportation-related services provided to a customer by a UAE logistic company should be zero-rated. However, these could not be eligible for zero-rating per se if the UAE logistics company simply offers services linked to transportation. If the logistics company provides the services to another UAE entity or customer in such a situation, the services shall be standard-rated.
If the logistics company provides the services to another UAE entity or customer in such a situation, the services shall be standard-rated.
Logistics service companies may be subject to tax arrears and penalties if their present VAT positions are illegal given that the VAT has now been in effect in the UAE for six years. In connection with that, income earned by logistics service providers in free zones is subject to a corporate tax rate of 0%.
However, there are stringent requirements for the preferential business tax rate. For the logistic service sector to continue to qualify for 0% corporate tax, extreme caution will be required. I fervently believe that businesses should thoroughly assess their current tax positions in order to prevent penalty hazards in the present or the future.