VAT on transportation services in UAE

VAT Applicability on Local Passenger Transport UAE

UAE or United Arab Emirates is a truly unique global place in this world where tradition and opulence go hand in hand, and that too sometimes synonymously. When opulence goes a long way in the UAE, its transportation services too must bear credibility of this statement. The transportation services and the high class road connectivity help in maintaining the credibility of being a high class nation and provide the levels of connectivity a developed nation needs to provide!

Taxis, buses, metro, mono, and trams are the preferred modes of transportation and each of these modes has its own advantages. Along with fantastic road network and public transport connectivity, the people using these modes of transport also get the facility of hassle free payment mode, thus making the entire process of local passenger transport in UAE much more comfortable and convenient. However, such a comfortable journey and rides involve a cost. Taxes are a way to recover such costs or at least a part of such costs. Value Added Taxes have been implemented in the UAE in 2018 and since then the taxes have had a great impact upon the various businesses operating in UAE.

VAT on Transportation Services in UAE
The transportation services in UAE are well regulated by the laws of the land. Following the rules of VAT Decree-Law is one of the important laws that the organisations involved in providing transportation services in the UAE need to adhere to. However, it is important to understand the implications of the rules and provisions of VAT on Transportation Services in UAE to comply with it.

According to Article 46 (4) of the VAT Decree –Law, the supply of local passenger transportation is exempted. Therefore, if a company ABC operates a Taxi service and offers its service to commuters, people within the UAE should follow the provisions of this law carefully. Services provided by this company ABC can include picking up employees from their residence to their places of work situated in the UAE. Suppose, when an employee or an organisation where such employees work arranges for the transportation of its employees connects with this transport Company ABC, Company ABC need not include VAT since such a journey is exempt from VAT according to Clause 4 of Article 46 of the VAT Decree – Law

Another Article 45 (1) of the Executive Regulation mentions that the supply of local passenger transportation service in any qualifying means of transport, as mentioned in the above section of the article (Taxi, bus, tram, metro, and mono and others) via land, air or water would be exempted. Therefore, company ABC is exempt even under this provision. How? Company ABC, as mentioned in the above paragraph, provides taxi services, which is a qualifying means of transport as mentioned above. Thus the services of Company ABC, if availed by any passenger or any organisation for the purpose of transporting the employees to the office and back, are exempt from VAT implications under Clause 1 of Article 45. However, suppose the organisation where the employees work organises a private jet and uses it to transport their employees to their homes would certainly not qualify as a means of local passenger transport in UAE.

It is clear that VAT Applicability on Local Passenger Transport UAE is zero in case it is a normal transportation service provided for regular activities such as travelling to work place and back or availing public transport to travel to the airport or take a drop from the airport. However, is every journey using the local passenger transport exempted from VAT in UAE? No, probably not.

This is because according to Article 45 (4) of the Executive Regulation, such exemption of VAT Applicability on Local Passenger Transport UAE will not apply in case the transportation service has been availed with a purpose of a pleasure trip. The definition of a pleasure trip includes sightseeing, dining out or enjoying catering services, and/or any other form of pleasure or entertainment that might include going to watch a theatrical performance too!

Now, let us understand these provisions through an example.
● Suppose there is a person X. Person X hires a taxi to travel to his office which is towards the south of his city, he need not pay VAT on Transportation Services in UAE.
● Person X, after finishing his office, needs to go for dinner. He hires another taxi to reach the hotel where he plans dinner with his friends. He needs to pay VAT on Transportation Services in UAE as this trip qualifies as a pleasure trip and is not exempted from VAT under Article 45 (4) of the Executive Regulation.
● After dinner, Person X needs to travel to the airport as he has to travel to the USA for a business meeting. Person X calls for a taxi to drop him to the airport. He need not pay VAT on Transportation Services in UAE as this trip is exempted under Article 45 (1) and 46 (4).

In the case of the trips in which Person X is exempted from paying taxes, the taxi operating company cannot claim or recover any expense under the VAT subheading.
Suppose the same taxi company is hired for all three trips mentioned above and coincidentally the same taxi and taxi driver completes the trip with Person X, only one trip would be applicable for VAT on Transportation Service in UAE – the one where he goes for dinner. For the remaining two trips, no VAT should be included in the bills.
Understanding these provisions of the law clearly would help you be aware and not give in to any inappropriate taxation. For more information, you can connect with KLOUDAC