VAT Treatment of Local Passenger Transportation Services in UAE

Basis of opinion

• Article 46 (4) of the VAT Decree Law
• Article 45 of the VAT Executive Regulation

Applicability

Applicable to the local passenger transportation service providers in UAE.

Application of the Law

Article 46 (4) of the VAT Decree-Law state that the supply of local passenger transportation is exempt from VAT.

Article 45 (1) of the Executive regulation exempts any supply of local passenger transportation services provided in a qualifying means of transport by land, water or air within the UAE.

Article 45 (4) of the Executive regulation state that the exemption will not apply if the transportation services are undertaken in the context of a pleasure trip where the principal objective is sightseeing, enjoyment of catering services or other forms of pleasure or entertainment.

Practical Example

XYZ rent a car LLC, a UAE mainland company engaged in the business of passenger transportation services within UAE.

The company is providing below types of services,

1. Transportation of employees of customers from accommodation to work and vice versa
2. Transportation of tourists from hotel to tourist areas, sightseeing shopping malls & restaurants
3. Transportation of tourists from airport to hotel and vice versa

What will be the taxability of above services provided by XYZ rent a car LLC?

Solution

There are three conditions mentioned in Article 45 of VAT Executive Regulation to treat local passenger transportation services as exempted.

• The transport services must be provided in a qualifying means of transport by land, water or air;
• The transport services must be provided from one place in the UAE to another place in the UAE;
• The service should not undertake in the context of a pleasure trip where the manner in which the trip is held out indicates that principal objective is sightseeing, enjoyment of catering services or other forms of pleasure or entertainment.

Based on the above conditions, the taxability of the services can be concluded as below,

• Transportation of employees of customers from accommodation to work and vice versa – Exempt supply*
• Transportation of tourists from hotel to tourist areas, sightseeing shopping malls & restaurants – Taxable at the standard rate
• Transportation of tourists from the airport to hotel and vice versa – Exempt supply*

*Since exempt supplies are not “taxable supplies”, the supplier cannot normally recover any of the VAT on expenses incurred in making those supplies.

Any questions or queries on this, please revert to tax@hlbhamt.com

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