VAT in the UAE Automotive Sector

June 8, 2021 | |

The Federal Tax Authority (FTA) has published a bulletin to lay some standard rules and regulations concerning Value Added Tax (VAT) in the UAE automotive sector. Accordingly, the businesses under the sector that make taxable supplies (including zero-rated supplies), imports, and expenses are required to register for VAT, and this involves the businesses of used car dealers, new car dealers, and the suppliers of repair parts and services.

The supplies thus affected by VAT in the automotive sector in UAE include,

  • the sales of new cars
  • the sales of used cars
  • the sales of repair parts
  • the assistance provided by service centers, warranties, and other insurance products

Comprised in the list are also the supplies of other means of transport, designed and used for public transportation of 10 or more passengers (such as buses) which are zero-rated for VAT purposes.

The FTA bulletin accordingly mentions certain scenarios to address the concerns raised during the application of VAT in UAE, such as:

  1. The profit margin scheme can be applied to the sales of used cars that have already been subjected to VAT during their initial purchase, given that clear invoice details are provided.
  2. When supplies are given away for free of charge, VAT is likely due to the deemed supply, unless an input tax is not claimed on the goods or the output tax for supplies per person is less than AED 2,000, where the value doesn’t exceed AED 500 in 12 months.
  3. Warranty packages sold separately to the customer will be subjected to the standard VAT rate in the first instance but will be treated as out of scope of VAT if separate charges are recovered from the customer.
  4. Standard VAT does apply to sales of vehicles that include a warranty package, even though the packages are purchased separately by the customer. However, further supply of service parts/spares under warranty will not be applicable unless additional considerations are provided.
  5. For manufacturers outside the UAE, the standard VAT is applied when they sell vehicles with a warranty to a customer in the UAE.
  6. Furthermore, if physical assistance (repair and maintenance) is provided by a service center in the UAE, a standard VAT is charged against them regardless of the cost being recovered from a manufacturer outside UAE.

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