VAT on exported services from the UAE: when 0%, when 5%
"The client is abroad, so we do not charge VAT." That is the most expensive assumption in the books of a UAE service company. Sometimes it holds; sometimes it costs 5% of the entire revenue plus a penalty. Only one concept settles it — the place of supply. Below: where the law considers your service to have been supplied, the three conditions under which an export is zero-rated, and the cases where a foreign client does not save you.
- Default
- place of supply is the UAE
- Exported services
- 0% on three conditions
- Zero-rated turnover
- counts toward AED 375,000
- Imported services
- reverse charge
The default: a service is supplied where you are
The starting point is simple: if you are registered in the UAE, the law treats your service as supplied in the UAE — regardless of where the client sits or where the payment came from. The default rate is 5%.
Zero-rating is not "no tax" — it is an exception you have to justify. The distinction matters: at the zero rate you charge no tax but still recover input VAT on your costs; on an exempt supply you charge nothing and recover nothing. The three regimes are set out in the VAT guide.
Who carries the burden. The authority does not have to prove the rate was 5% — you have to prove you were entitled to zero. Which means the evidence of your client's status and location is gathered at the time of the transaction, not when an FTA query arrives.
The three conditions for zero-rating
A service to a foreign customer is zero-rated only if all three hold at once:
| Condition | What it means in practice |
|---|---|
| The client is not a UAE resident | no place of establishment or fixed establishment in the UAE or in a state applying the common GCC VAT regime |
| The client is physically outside the UAE while the service is performed | a short visit unrelated to the service usually does not break this — but it must be short and unrelated |
| The service does not relate to assets in the UAE | not connected to real estate in the country, nor to movable assets located here at the time |
One condition failing is enough to make the rate 5%. That is not a penalty — the service is simply treated as supplied inside the country.
Where the place of supply is determined differently
For certain services the law sets special rules, and the place of supply matches neither your address nor the client's.
| Type of service | Deemed supplied |
|---|---|
| Related to real estate | where the property is located |
| Transport and related services | where the transport begins |
| Restaurants, hotels, catering | where actually performed |
| Cultural, sporting, educational events | where they take place |
| Telecommunications and electronic services | where they are actually used and enjoyed |
The last line regularly catches online businesses out: the place of supply of an electronic service is set by where the customer actually uses it, not by the address on the contract. For a company selling subscriptions or platform access, that means knowing the geography of its users, not just the billing details.
Typical situations
| Situation | Rate | Why |
|---|---|---|
| Consulting for a client in Europe who stays there | 0% | all three conditions met |
| The same client flies to Dubai for those meetings | 5% | present in the UAE, and the presence relates to the service |
| Marketing for a foreign company that has a UAE branch | usually 5% | an establishment in the country connected to the supply |
| Valuing a Dubai property for a London client | 5% | the service relates to UAE real estate |
| Online course, students abroad | 0% | used and enjoyed outside the UAE |
| The same course delivered in person in Dubai | 5% | an educational event taking place in the country |
The trap behind most assessments
A company invoices a foreign customer at zero for years. Then it emerges that the customer has a UAE subsidiary and the service relates to it one way or another. The authority recalculates the entire history at 5% — and recovering that money from the client after the fact is no longer possible.
Hence the practical rule: check the client's status at the start and record it in the contract. A written statement from the counterparty that it has no UAE establishment is worth keeping — not a guarantee, but evidence of your good faith if it is ever questioned.
A free zone does not switch VAT off. The special regime applies to designated zones and concerns primarily the movement of goods. Services are, in the overwhelming majority of cases, taxed under the ordinary rules wherever the company is registered. "We are in a free zone, so VAT does not apply to us" is the same class of mistake as "the client is abroad".
The other direction: services you buy
If you buy a service from a foreign supplier — software subscriptions, consulting, advertising — you must account for the tax yourself, on the supplier's behalf. This is the reverse charge: the same amount appears as output and input tax in the same return.
For a company with full recovery this nets to zero in cash terms, but it still has to be reported. A missed reverse charge is a standard audit finding, especially in companies that buy a lot of foreign services.
Zero-rated turnover counts toward the threshold
A frequent error: "everything we do is zero-rated exports, so the AED 375,000 threshold does not apply to us." The opposite is true. The threshold includes supplies at 5% and at zero, plus imports on which you account for the tax as recipient.
A company working entirely on exported services must register at the same turnover as anyone else. And registration usually pays: there is nothing to charge, while input VAT on rent, software and contractors can be recovered. Thresholds and deadlines are in the VAT guide; late-registration penalties are in the FTA penalty summary.
What an export invoice must show
It remains a full tax invoice: the words Tax Invoice, your TRN, a description of the service and the amount. The difference is that the tax amount is zero, and the basis for that must be visible — from the customer's country, the nature of the service and, where useful, an explicit line stating that the zero rate applies. The document requirements are covered separately in Tax Invoice in the UAE.
The most common mistakes
- Zero by default because the client is foreign. The three conditions were never checked.
- No tracking of the client's presence in the UAE. Meetings on the ground turn a zero rate into 5%.
- The reverse charge is not reported on foreign subscriptions and advertising.
- Assuming a free zone exempts services from VAT. It does not.
- Excluding exports from the threshold — and missing mandatory registration.
- Keeping no evidence of the client's status. Two years later there is nothing to show.
