VAT On Services Provided Outside UAE

Since VAT (Value Added Tax) was introduced in the UAE in 2018, most businesses have been charging a standard 5% on goods and services sold within the country. But what happens when your business provides services to clients who are outside the UAE? Do you still need to charge VAT?

The answer isn’t always straightforward. It depends on something called the “place of supply”, a key rule that helps determine whether your service is taxed in the UAE or not. In many cases, if you’re dealing with customers located outside the UAE, your services might be zero-rated (charged at 0% VAT) or completely outside the VAT scope, meaning no VAT applies.

That’s why understanding how VAT on services provided outside UAE works is really important for staying compliant and avoiding unnecessary taxes or fines.

What Is VAT and How Does It Apply in the UAE?

VAT stands for Value Added Tax, a consumption tax charged at each stage of the supply chain from production to sale. Although businesses collect and pay it to the government, the final cost is ultimately borne by the end consumer.

VAT was introduced in the UAE on January 1, 2018, with a standard rate of 5% on most goods and services.

However, certain supplies fall into special categories:

• Zero-rated (0%): Usually exports, international transport, and specific sectors like education and healthcare
• Exempt: Includes things like financial services, sale or lease of residential properties, bare land, and local passenger transport

A zero-rated supply lets you recover input VAT, while an exempt supply does not; you can’t claim back VAT on inputs.

Domestic vs International Supply of Services

Domestic supplies (services within UAE boundaries) are taxed at 5%.

International supplies, like services for clients outside the UAE, may be zero-rated or outside the scope of VAT, depending on the “place of supply” rules.

For zero-rated international services, you won’t charge VAT, but you can still reclaim input VAT on related business costs.

Understanding ‘Place of Supply’ for Services

The place of supply is the country where a service is considered to have been supplied for VAT purposes. This determines whether VAT should be charged, and at what rate. In the UAE, the default rule is based on the supplier’s location.

Under Article 29 of Federal Decree-Law No. 8/2017, the place of supply for services is generally the supplier’s place of residence, meaning where your business is based.

Special Rules: Article 30 Exceptions

However, several special cases under Article 30 override the default:

• B2B services to a non‑UAE VAT‑registered business: The place of supply is the recipient’s country.
• Services related to goods (e.g., installation): The place of supply is where the service is performed.
• Leasing transport to a non‑VAT lessee: Place of supply is where the asset is delivered.
• Hotel, restaurant, catering: Place of supply is where the service is physically provided.
• Cultural, artistic, sporting, and educational services: Place of supply is where the event occurs.
• Real estate services: Place of supply is where the property is located.
• Transport services: Place of supply is where the journey starts.
• Telecom and electronic services: Place of supply is where the service is used or enjoyed.

If the place of supply is inside the UAE, you must charge VAT at 5%. If the place of supply is outside the UAE, the service is zero-rated or out-of-scope, and you don’t charge VAT.

Applying the correct rule ensures you avoid unnecessary VAT charges, possible penalties, or missed claims.

VAT on Services Provided Outside UAE

If your business provides services to clients outside the UAE, these services may fall into one of two categories:

1. Zero-rated (also known as 0% VAT): You don’t charge VAT, but you can claim back VAT paid on related expenses.
2. Out-of-scope: These services don’t count as VAT supplies—they aren’t reported in VAT returns, and you can’t claim input VAT.

A. Zero-Rated Services

Zero-rated services are those considered exports under UAE VAT law. According to Article 31 of the Executive Regulation:

• The service must be provided to a client whose place of residence is outside the UAE (or, alternatively, performed entirely outside the UAE), and
• It cannot involve real estate or movable property located in the UAE

Furthermore, if a service is actually performed overseas, that alone can qualify it as zero-rated, even if the client is a UAE resident, so long as the recipient doesn’t use the service in the UAE.

Common examples:

• Consulting UK clients from Dubai.
• Legal advice, design work, or training delivered entirely outside the UAE.
• IT support provided remotely to clients abroad.

B. Out-of-Scope Services

Out-of-scope services are never subject to VAT in the UAE, and they don’t feature on VAT returns. These include:

• Services provided by a business fully located outside the UAE to clients also outside the UAE
• Electronic services supplied overseas where both supplier and recipient are non-UAE entities

Example scenarios:

• A UK-based marketing firm serving only UK clients.
• A freelance graphic designer in India working solely for Indian companies.

When UAE Businesses Don’t Charge VAT

You do not charge VAT in these situations:

Your service is zero-rated:

• Provided to overseas clients.
• Or completely performed outside the UAE.
• And not tied to UAE property or assets.

Your service is out-of-scope:

• Your business and clients are both outside the UAE.
• Services are entirely beyond the UAE’s VAT jurisdiction.

What are the Key Conditions for Zero-Rating Services?

To apply 0% VAT on services provided to clients outside the UAE, the following conditions must be met:

1. Client Must Be Outside the UAE

The client must not have a place of residence in the UAE—no head office or fixed establishment there. If multiple establishments exist, the one most closely tied to the service is considered. The client must be physically outside the UAE at the time the service is performed. A short visit (under 30 days) that isn’t connected to the service doesn’t affect this.

2. No Link to UAE Real Estate or Goods

The service must not be directly connected to real estate or physical goods located in the UAE.

3. No Business Presence in UAE

The recipient should not have a branch, office, or other business setup in the UAE that is related to the service.

4. Proper Documentation Required

You must keep documents like:

• Client’s business license or proof of address outside the UAE
• Contracts showing the recipient and the nature of service
• Evidence of where the client was when the service was delivered

Special Cases & Exceptions

While many services provided to clients outside the UAE can be zero-rated, there are some exceptions where UAE VAT still applies, even if the customer is based overseas.

1. Services Related to UAE Real Estate

Any service directly tied to UAE property, such as property management, leasing rights, construction, or real estate agency work, is treated as supplied in the UAE, regardless of your client’s location. You must charge 5% VAT.

2. Services Connected to Events Held in the UAE

Services for cultural, artistic, sporting, educational, or entertainment events take place where the event occurs. If the event is in the UAE, even if the client is abroad, you must add 5% VAT.

3. Services Rendered to Non‑Residents but Used in the UAE

If you provide services to a non-resident that are used or enjoyed in the UAE, the place of supply shifts to the UAE. For example:

• UAE-based web hosting serving UAE customers, even for an overseas business.
• On-ground installation or customisation of goods in the UAE for a foreign client.

In these cases, you must charge VAT at 5%, even if your service is technically for a non-resident.

Need Help with VAT? Let Shuraa Tax Guide You

To sum it up, if you’re offering services to clients outside the UAE, it’s important to understand how VAT works. Knowing when to apply 0% VAT, when it’s out of scope, or when standard VAT still applies can save you from costly mistakes. Make sure to review your service contracts, client details, and VAT setup regularly.

And if it feels confusing, don’t worry, Shuraa Tax is here to help. Our VAT experts can guide you through the rules, help with proper documentation, and even handle your VAT returns. We make VAT easy, so you can focus on running your business.