Impact of VAT on Transactions in Marine Sector
Mainly due to its geographical standing and the proximity to sea waters, UAE has been destined to witness business transactions relating to shipping and vessel management in an extensive way. It is crucial to note that the tax treatments on each of those transactions in the marine sector may differ based on various underlying factors. We discuss here different VAT aspects applicable to the marine industry in UAE to get a better understanding of the key elements involved in assessing the transactions to assign appropriate tax mappings. There are several different rates of VAT on marine sector based on goods or services. Apart from the conventional transport services, there are many other related services and supply of goods which come under the shade of the marine sector.
Examples for transactions in the marine sector
When we talk about transactions in the marine sector, those include the following but not limited to
- Transportation of goods and passengers
- Supply of goods and services to a vessel which is used as commercial means of transport
- Supply of goods and services to a vessel which is for recreation purposes
- Management and documentation services relating to logistics including packing, loading, storage, unloading etc.
- Repairs and maintenance of vessels
- Supply of vessels used for commercial means of transport, recreation purposes or the ones used for the rescue operations
- Any other related services for the operation of vessels
When can a transaction related to a vessel be categorized under zero category in VAT return?
International transportation of goods or passengers in which the voyage either starts or ends in UAE shall be zero-rated. If any local transportation is taking place as part of or for purpose of such international transportation, the same will also come under the zero-rated category. Also, any other services related to such transport can also be zero-rated.
Company ‘A’ owns a vessel which is used for transportation of goods from UAE to UK, the revenue earned from such transportation services is to be categorized as zero-rated in the VAT return of “A”.
Which all transactions are to be treated as standard-rated in VAT return relating to marine transport?
Transport of goods in a vessel within UAE are taxable at the standard rate. Any support services relating to such local transport of goods also are categorized under as standard rated. Any local transportation of passengers in a vessel for recreation purposes such as sight-seeing will also come under the same category.
Company “B” owns boats which are rented out for tourists on an hourly basis for entertainment within the territorial space of Dubai Marina. Rental income earned by “B” from such boats, which are clearly for recreation purposes is taxable at the standard rate.
Are there any transactions eligible to be categorized as exempted relating to the marine sector?
Any transport of passengers within UAE in a qualifying vessel can be treated as an exempted transaction. A qualifying vessel is defined in the regulation as any ferry-boat, abra or any vessel which is capable of transport of passengers. It is to be noted that if such transport of passengers in a qualifying vessel is for any entertainment purpose such as for pleasure, sight-seeing etc. then such transport services shall still be categorized as standard-rated as discussed in the above section.
Which all transactions are considered as outside the scope of UAE VAT relating to the marine sector?
Transportation of goods or passengers in which the voyage starts and ends outside UAE will be outside the scope of VAT in UAE. Also, any services related to such transport will be out of scope.
What are the VAT implications on the supply of goods to a vessel?
The tax treatments on the supply of goods or services to a vessel will follow the same treatment of respective transport services based on their nature whether local within UAE or international. Such supply will include the ones intended for consumption onboard or be consumed by the vessel. For example, Company “C” supplies food items to a ship, to be consumed by the crew of the ship which transports goods from UAE to UK. Such supplies of food items by “C” are zero-rated. “C” also sells food items to a boat which is operated for sight-seeing activities within UAE and the same shall be taxable at the standard rate.
How CDA can provide you with valuable inputs on your business and transactions in the marine sector?
CDA can support you on various tax and accounting related matters right from the registration process to the bookkeeping, reporting and other compliance activities. We are equipped with a team of competent professionals who can guide you in each of the procedures in your finance function. We look forward to associating with you and providing you with our value-adding consulting services. We are happy to extend to you our insightful thoughts to deal with any of your complex tax and accounting related matters with our experience of assisting multiple clients in various sectors across UAE.
Hopefully, some of the tips provided above will help you to learn about the effects of VAT on transactions in the marine sector. These are the major impact and effect of VAT on transactions in the marine sector. If you still have any doubts, feel good to contact CDA. Our experts will provide you with a free one-hour consultation to drive away your worries.