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VAT treatment on temporary export and re-import

Transaction description

Company temporarily exports goods outside UAE. Such temporary export may be for the purpose of exhibition, auction or display, etc. At the time of export, Company files export declaration which specifically states that goods are temporarily exported along-with other official and commercial evidence. Subsequent to exhibition, auction, display, etc. such goods are re-imported in UAE by filing required documentation. On such re-importation, import duty is not paid and the given transaction is not getting auto-populated under Box 6 of the VAT return.

Issues under consideration

  • Whether temporary export of goods would be treated as zero-rated exports or out of scope for the purpose of VAT?
  • Whether re-importation of temporarily exported goods would be treated as import under VAT and taxable at 5% under reverse charge mechanism (‘RCM’)?

Analysis

 Part I – VAT implication on temporary export of goods

Reference is drawn to the definition of ‘export’ given under the UAE VAT Executive Regulations which states that –

“Goods departing the State or the provision of Services to a Person whose Place of Establishment or Fixed Establishment is outside the State, including Direct and Indirect Export”

As per the above definition, goods departing the State would be treated as export.

Additionally, Article (45) of VAT Decree Law provides list of supply of goods and services that is subject to zero rate. As per Clause (1) of the given Article, “a direct or indirect Export to outside the Implementing States as specified in the Executive Regulation of this Decree-Law.”

Supply of goods is described under Article (5) of VAT Decree Law as –

“The following shall be considered a supply of Goods:

  1. Transfer of ownership of the Goods or the right to use them to another Person according to what is specified in the Executive Regulation of this Decree-Law.
  2. Entry into a contract between two parties entailing the transfer of Goods at a later time, pursuant to the conditions specified in the Executive Regulation of this Decree-Law.”

Based on the conjoint reading of the above provisions, it is imperative to note that for a transaction to qualify as zero-rated export, firstly there should be a supply of goods.

In the instant case, Company has temporarily exported goods outside UAE for a specific purpose of exhibition, auction, display, etc. and it will be re-imported once the given purpose is fulfilled. Hence, it can be said that Company has not supplied goods as it has not transferred ownership of such goods or the right to use during such export. Accordingly, it may be stated that temporary export of goods may not qualify as zero-rated exports and it may be treated as outside the scope for the purpose of VAT. Thus, there is no requirement to disclose the given transaction in the VAT return.

Reference is also drawn from ‘GCC Unified Guide for Customs Procedures at First Points of Entry’ and ‘KSA Imports and Export Guideline’ which states that –

GCC Unified Guide for Customs Procedures at First Points of Entry

As per Reference Code 0203 on Temporary exportation,

“1. The following goods may be temporarily exported:

  1. c) Temporary exported articles for playgrounds, theatres, exhibitions and the like.
  2. The applicant shall submit to the customs office color photocopies of the goods that are difficult to identify, for verification when re-imported.
  3. The customs office may take necessary actions and measures utilizing appropriate means that would enable the customs office to identify those goods when re-imported.
  4. ….
  5. The period of temporary exportation may not exceed one year (365 days) for the cases mentioned in item 1 above (c, e, g).”

Based on the above Customs Procedure, it is important to note that on following the required procedure goods can be temporarily exported outside UAE for the purpose of exhibition, auction or display, etc. and post such activity is completed it is required to be re-imported within the specified time period. Thus, an inference can be drawn from the above and it may be concluded that goods can be temporarily exported outside UAE without any supply being made and such transaction may qualify as outside the scope for the purpose of VAT.

KSA Imports and Export Guideline

“7.6. Export of goods without sale

For Customs purposes, an export of goods includes any transport of goods outside of the Kingdom, including any person (legal person or natural person) moving goods from the KSA without sale.

For VAT purposes, the shipment of a person’s own goods outside of GCC territory – including movements made in the course of an economic activity – is not a supply of goods for consideration. Therefore, the zero-rate does not apply in this event as no supply is made (63). Movements of goods outside of GCC territory should not be recorded on a taxable person’s VAT return.

Guidelines stated in KSA affirms the tax position stated above.

Part II – VAT implication on re-importation of temporarily exported goods

To determine the implication on re-importation of temporarily exported goods, I would like to refer to the definition of ‘import’ given under the UAE VAT Executive Regulations which states that –

“The arrival of Goods from abroad into the State or receiving Services from outside the State.”

As per the above definition, arrival of goods from outside UAE would be treated as imports.

Generally, VAT is applicable at 5% under RCM in case of import of goods. However, in the given transaction, it is to be noted that goods were temporarily exported for the specific purpose of exhibition, auction, display, etc. Subsequent to such exhibition, auction or display, goods are returned in UAE. Customs duty is not applicable on such re-imported goods. Moreover, Customs declaration filed with the Authority specifically discloses the fact that the returned goods were temporarily exported for the purpose of exhibition, auction or display, etc.

Thus, to identify the VAT implication on such returned goods, I would like to refer to Article (47)(2) of UAE VAT Executive Regulations which states that –

“Tax shall not be due on any Import of Goods where they are under an exemption from Customs duty under the following categories in accordance with the GCC Common Customs Law:

  1. ….
  2. ….
  3. ….
  4. Returned Goods.”

Hence, to determine the Customs exemption on such goods, I would like to mention Reference Code 0506 on ‘Exemption of re-imported Goods’ of GCC Unified Guide for Customs Procedures at First Points of Entry which states that –

“2. Foreign re-imported goods, previously exported, shall be exempted from customs taxes/duties, subject to the following controls:

….

  1. Goods temporarily exported outside the GCC States shall be exempted from customs taxes/duties according to temporary exportation controls for the following goods:
  2. c) Temporary exported articles for playgrounds, theatres, exhibitions and the like

In the present case, goods are returned in UAE subsequent to temporary export and Customs duty is not applicable on such goods (as described above). Accordingly, on applying the above provisions, it may be stated that VAT shall not be due on such import of returned goods and it may be considered as outside the scope for the purpose of VAT. Thus, there is no requirement to disclose such transaction under VAT return (the same also aligns with the fact that such returned goods are not getting auto-populated under Box 6 of the VAT return.)

Conclusion

It is highlighted that there is no VAT exposure in respect of the above transactions. Companies may have made a disclosure error due to which there may be a potential penal implication of filing incorrect VAT return. It is important to ensure that the goods are returned within the timelines prescribed under the Customs regulations.

Note – Above implication does not cover goods temporarily exported outside UAE for the purpose of manufacturing or repair and re-importation in UAE. This topic would be covered in a separate Article.

 

Gaurav Shivhare

Chartered Accountant – England & Wales and India

WTS Dhruva Consultants

+971564030888

 

Disclaimer: Content posted is for informational & knowledge sharing purposes only and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/ interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/ post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.

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