The Challenge
"We ship furniture from our Sharjah warehouse to buyers in Saudi Arabia and Europe, and we also do design consultancy for a client based in London. Do I charge them 5% VAT like my UAE customers, or is it different because they're outside the country? I don't want to under-charge and get hit with a penalty, but I also don't want to overcharge and lose the deal."
This is one of the most common VAT questions we hear from UAE trading and services businesses, and it’s also one of the easiest to get wrong. The confusion usually comes from mixing up “VAT-free” with “zero-rated” — the two sound the same but carry very different compliance obligations.
Our Approach
- Zero-rated, not exempt — exports of goods and most exported services outside the UAE are taxed at 0% VAT, meaning you still charge and report VAT (at zero), still issue a valid tax invoice, and still recover related input VAT — this is not the same as an exempt or out-of-scope supply.
- Evidence is everything — to apply the 0% rate on goods, you need commercial and official evidence the goods left the UAE within the timeframe set by the VAT law (customs declarations, exit certificates, shipping and airway bills); without this evidence, the FTA can treat the supply as standard-rated at 5%.
- Services depend on where the customer is — export of services can be zero-rated where the recipient has no place of residence in the UAE, is outside the UAE when the service is performed, and the service isn't connected to UAE real estate or received while the customer is physically present in the UAE; if any of those tests fail, standard 5% VAT can still apply.
- Because these conditions turn on facts specific to each transaction — the nature of the goods or service, the customer's location, and the paperwork you hold — we review the underlying contracts and evidence trail for every client claiming zero-rating, so the position is defensible if the FTA ever asks for proof rather than assumed and left exposed.
The Result
Businesses that get this right treat every export as a taxable supply at 0%, not a VAT-free transaction: they issue a compliant tax invoice, keep customs and shipping evidence (or the service-specific proof for exported services) on file for the mandatory five-year VAT record-keeping period, and report the sale correctly in their VAT return. Done this way, the business pays no VAT on the export, still recovers input VAT on related costs, and has the documentation ready if the FTA questions the zero-rating during a review.
The Takeaway
"Exports outside the UAE are usually zero-rated, not VAT-free — you still invoice and report VAT at 0%, and you need solid evidence of export or of the customer's location to keep that rate."
