I often travel to India for family purposes. As a result, the tax advisory and other tax work for the UAE. clients are physically executed outside UAE during the such travels. A question arises whether such supply of services would qualify for zero-rating under the VAT laws.

This question is not unique to travel situations but applies to many day-to-day business transactions. UAE. suppliers supply services to UAE customers wherein the actual services are executed outside UAE To illustrate, just visualise the transaction of documents attestation (say for visa purposes) performed outside UAE; or, quality/design inspection of goods located outside UAE; or, services provided, on behalf of a UAE client, to an entity located outside UAE at their office premises.

VAT Executive Regulations

The aforesaid question originates as the UAE VAT laws provide that the services that are actually performed outside the UAE are zero-rated (Ref: Art.31(1)(b) of the Executive Regulations).

We often come across situations wherein businesses apparently zero-rate their supply of services based on the place of physical performance. However, it would be incorrect to read the zero-rating provisions in isolation without the appropriate context.

In our very early Tax Conversations on 29 Mar 2021, we discussed the importance of the understanding the context in interpreting the tax laws.

Place of Supply (PoS)

VAT is imposed on taxable supplies and deemed supplies made in the UAE by a taxable person. For determining the VAT implications, one needs to determine two factors, namely, (i) the Place of Supply (PoS) of services, and (ii) the eligibility for zero-rating.

As a general rule, the PoS of services is the place of residence of the supplier.

However, special PoS rules apply for certain specified services. If, as per the special PoS rules, the ‘place of supply’ is outside UAE then the said supply would be ‘outside the scope’ of UAE VAT.

Physical place of performance is relevant for very limited services i.e. (a) restaurant, hotel, and food and drink catering Services; (b) services related to goods, such as installation of goods supplied by others; and (c) cultural, artistic, sporting, educational or any similar services.

No other service is governed by place of performance. The supply of service by UAE suppliers would generally be treated as supplied in the UAE itself.


A direct or indirect export to outside UAE qualifies for zero-rating. The export of services are zero-rated in specific scenarios.

Under the first scenario, zero-rating applies where the following two conditions are met and the service is not specifically excluded from zero-rating – (a) the services are supplied to a person not resident in the UAE, and (b) the service recipient is outside UAE at the time the services are performed.

FTA has clarified that a non-resident service recipient may lose the benefit of zero-rating if they create a temporary presence in the UAE at the time the services are performed (Ref: Public Clarification VATP019)

Under the second scenario, zero-rating applies if the services are actually performed outside the UAE.

Rational Interpretations

To contend that that the second scenario grants zero-rating benefit to any & all services performed outside UAE would be out of context and irrational.

For one, the VAT laws provides that the ‘export’ of service shall be zero-rated under the aforesaid scenarios. ‘Export’ has been expressly defined to mean the provision of services to a person established outside UAE As the services provided by a UAE supplier to a UAE customer does not qualify as ‘exports’ at the first place, the zero-rating benefit cannot apply even if the services are performed outside the UAE

Further, any such relaxed interpretation would make the PoS rules redundant. One of the golden principles of interpreting statutory laws is that no provision of the said law should become void, superfluous, or redundant.

The interpretation that any services performed outside UAE is zero-rated would lead to irrational results. Let us assume that the services supplied by a UAE supplier to UAE customers, but performed outside UAE, would be zero-rated. However, the very same services when performed by an overseas supplier would attract VAT under reverse charge mechanism (RCM).

With the increase in VAT Audits, businesses should ensure that their VAT positions are aligned with the correct and rational interpretation of the tax laws. Any tax risks created due to ignorance or incorrect interpretations could result in significant penalties.

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