Facts of the case
It is a common practice in UAE, where the Logistics company in Designated Zone (being the importer on record) imports on behalf of the Foreign Suppliers say in UK, gets the goods cleared from the customs with the help of Clearing and forwarding agents using the Customs number of logistics company and stores the goods in their own warehouse as pet the directions of foreign supplier.
The ownership of the goods is still with the foreign supplier and the Logistics company do not have the title on the goods as they are working just as the custodian of the goods and earn by way of Warehousing and other allied charges.
The Logistics company dispatches the goods to the customers of the foreign supplier either in Designated Zone, Mainland, GCC, Rest of the world on the directions of the supplier on the basis of commercial invoice(for customs purpose) raised by the Logistics company.
Challenges and their possible solutions
Query 1 Taxability at the time of import by Logistics company?
Our View: Imports from Outside UAE to Designated will be considered as out of scope transaction and that need not to be reported in return.
Query-2 How the sales from the designated zone by the Logistics company will be made?
Our View: Possible scenario’s of supplies by the Logistics Company (located in designated zone)
1. Sale within the designated Zone- Sales within the designated zone can be made on the basis of commercial invoice and by Filing Free Zone transfer Bill of entry.
2. Sale to Mainland- On the basis of commercial invoice for the customs and filing import Bill of entry. In this case the importer in the mainland is liable to account for tax under the reverse charge mechanism.
The sales to main land will be reported by the mainland customer who has accounted for the liability under the reverse charge mechanism.
3. Sale to GCC countries (presently status of implementing states not given to any GCC country)- Presently it will be considered as normal exports and that can be made with Commercial invoice and Free Zone transit-out document.
4. Sale to Rest of the World- Exports will be made on the basis of Commercial invoice and Free Zone transit-out document.
Query-3 Whether the supply of services by the Logistics company to the foreign supplier will be taxable?
Our View: Since the supply of services from the mainland and Designated zone is treated at par, the value of storage and other allied services will be chargeable to VAT.
However as per Article 31 of the Executive regulations (Export of Services), it will be considered as export of service, if the Services are supplied to a Recipient of Services who does not have a Place of Residence in an Implementing State and who is outside the State at the time the Services are performed provided that the transaction is not directly related to real estate.
Since, only the storage services can be said to be directly linked to the real estate, it may be taxable at 5%. However the other allied services can be said as export of service as per the article mentioned above, hence these allied services , may be zero rated.
Query-4 How the credit of the taxes paid by the foreign supplier can be claimed by him?
Our View: As, the foreign supplier is not having a place of establishment in UAE, the credit of the 5% VAT charged by the Logistics company on the warehousing charges will be considered as cost to the foreign supplier. Hence the cost of the foreign supplier will increase.
Query-5 How the transactions will be reported in VAT return by the Logistics company?
Our View: Since the supplies from designated zone to designated zone and designated zone to outside UAE is out of scope, that may not be reported in VAT return.
Supplies to the mainland will be reported by the customer under the reverse charge.
For more information, please contact:
Chirag Chawla CA
Indirect Tax Specialist
Outcome Solutions & Services LLP.