If goods and services are purchased from abroad, VAT is applicable. Most of the goods and services consumed in the UAE are imported; most come from Europe and Asia, while a few come from other GCC countries. To make it easier to understand, let’s see a few examples:
Case 1: If the business owner in the State is a registered person with the Federal Tax Authority for VAT purposes, VAT would be due on that import using a reverse charge mechanism.
Example: Aamir is a perfume dealer in UAE and is a VAT registered business owner. He imports perfume from France for sale in the UAE. He will owe VAT under the reverse charge mechanism, in which Aamir pays the tax directly to the government, and he can claim Input Tax Credit for this import.
Case 2: If the business owner in the State is a non-registered person for VAT, then VAT would be paid on goods being imported from outside the GCC. Such VAT will typically be paid before the goods are released to the person.
Example: Abdul is a non-registered business owner under VAT in the UAE. He imports goods from places outside the GCC. In this scenario, VAT is due to the UAE government and has to be paid before the goods are released to Abdul.
Case 3: If goods are transhipped via UAE to other GCC countries, import VAT is applicable. The Input Tax Credit cannot be claimed in UAE, but can be claimed in the final destination member state.
Example: Hamid deals in cutlery, and he tranships goods via the UAE to other GCC countries. In this case, import VAT is applicable. Although Hamid has to pay VAT in the UAE, the input tax credit cannot be claimed there. He can only claim it in the destination state.
Case 4: If Goods are previously imported to UAE and then exported to other GCC countries, import VAT is applicable. The input credit recovered via reverse charge has to be paid back to the UAE tax authority.
Example: Kadar owns an electronics business in the UAE and Kuwait. He previously imported 100 television sets to the UAE, and then he exported 40 of them to Kuwait (which is also a GCC country). In this case, the input tax credit which Kadar received on the 40 television sets has to be paid back to the UAE tax authority.