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Different VAT rates for courier and freight services

Type of building doesn’t matter for VAT on maintenance services

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What VAT rate will apply on our different courier and freight services? For example, we are moving shipments domestically, besides exporting and importing documents and parcels. We pay customs duties on behalf of our customers. I would like to know whether five or zero per cent will be applicable on each service? Muzammil

The domestic transportation of goods in the UAE is subject to VAT at five per cent, says tax expert Shiraz Khan, head of Al Tamimi & Company’s Middle East tax practice. The exporting of documents and parcels is categorised in the same way as the exporting of any goods to outside the GCC countries that have implemented VAT — they are subject to VAT at zero rate.

If goods are imported by a taxable person from outside the GCC and the goods are then moved to another GCC member state, VAT will be payable at the first point of import. This VAT will be recoverable only in the destination country, according to Deloitte.

For the import of documents and parcels, Khan says assuming that the questioner’s company is registered for VAT, it will need to account for VAT under the reverse charge mechanism. Therefore, the company will need to charge VAT on the value of the imported goods at 5 per cent, but it should be able to claim a deduction for the same as input VAT is subject to the normal rules of VAT recovery.

Lastly, for customs duties, VAT will apply at 5 per cent on the value of imported goods inclusive of customs duties, Khan adds.

Maintenance services

We have an elevator business that does installation, service, and maintenance. We have contracts with the main contractor or client for installation of elevators. Do we have to charge them VAT irrespective of whether it’s a residential or commercial building? And if we do have to charge them, do we need to charge on the contracts that are already signed for one or more years and covers partly for 2018 also? We are confused as we thought that residential buildings are either zero-rated or exempted.

According to the executive regulations issued by the Federal Tax Authority, residential properties are, indeed, exempt from VAT. However, that is only relevant for those buying and supplying these properties, and not for those providing services at these properties. Surandar Jesrani, partner and chief executive officer at Morison MJS Tax Consultancy, said that the questioner’s company would be required to charge VAT at 5 per cent to its contractual customer, irrespective of the type of building, for installation made in or after January 2018.

Jesrani said that the company is also required to charge VAT on the value of service and maintenance provided on or after January 1, 2018.

TRN for warehouses

We have two warehouses. One is inside SAIF Zone [Sharjah Airport Free Zone] and the other one is in Sharjah Industrial Area. They have different trade licence numbers. Our day-to-day activities happen outside these warehouses. We are using the SAIF Zone warehouse for the purpose of storing goods and transferring stocks only from the SAIF Zone to the other warehouse. During VAT registration, we didn’t consider the warehouse in the Industrial Area as coming under the same roof for VAT. Should I add this also under the same Tax Registration Number [TRN] or do I need to register it separately? Can I add this warehouse now? And what is the procedure?

Joji Verghese, Sharjah

According to Shiraz Khan, head of Al Tamimi & Company’s Middle East tax practice, assuming that the businesses of both warehouses are branches of the same legal entity, they will be treated as a single person for VAT purposes. Therefore, the company cannot register each branch or warehouse separately. A single VAT registration will be required and the same TRN will be applicable for both branches. It is recommended that the questioner request the Federal Tax Authority that he wishes to upload the trade licence of the branch that is carrying out activities in the Industrial Area and amend the registered address to the address of the warehouse in that location since this is the branch that is carrying out the primary business activities.

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