VAT On Services Provided Outside UAE

The UAE VAT system treats services supplied across borders differently to goods, and the rules often surprise finance teams. 

Standard VAT has applied in the UAE at 5 percent on most supplies since 2018, but cross border work depends on where the service is used and who the customer is.

For many firms, understanding how VAT in Dubai applies to services performed for foreign clients, or purchased from foreign suppliers, now sits at the centre of tax control and pricing.

Core Rules for VAT on Cross Border Services

For services, VAT usually follows a place-of-supply test rather than where the supplier’s office sits.

If the customer is a VAT-registered business in the UAE and the service is effectively used in the UAE, VAT often applies in the UAE, even if the supplier is based abroad.

If the customer is overseas and the service is enjoyed outside the UAE, the transaction will be zero rated or outside the scope, provided conditions in the law and executive regulations are met.

Customer status matters. Business-to-business services often rely on the customer’s VAT registration and place of establishment. Business-to-consumer services usually follow the supplier’s location, subject to specific rules such as for electronic services or events.

When Services are Performed Outside UAE but Still Taxable

A common assumption is that work carried out completely outside the UAE falls outside the UAE VAT system. In practice, this is not always true.

If a UAE business provides consulting, engineering or management services to its UAE client’s foreign branch, and the benefit of the work is enjoyed in the UAE head office, the transaction is still standard rated. Tax teams need to map who receives the service in substance, not just whose name is written on the invoice.

Imported services create the opposite issue. A UAE company can buy legal advice, software support or design work from an overseas firm with no UAE registration. If the service supports a UAE business activity, local VAT can arise through the reverse charge mechanism even though the supplier never charges UAE VAT on the invoice.

When Services can be Zero-Rated or Outside Scope?

Exports of services can be zero-rated where strict conditions hold. Typical conditions include:

• The customer is outside the UAE at the time the service is performed.
• The service is not directly connected to real estate or movable goods located in the UAE.
• The service is not received by a person who has a place of residence in the UAE and is not used by a UAE branch.

Some services are outside the scope of UAE VAT because they fall under special regimes or are supplied entirely outside the GCC implementing states. For example, services supplied by a non-resident between two non-resident customers, with no link to UAE establishments, normally sit outside the UAE system.

Important Advice: Classifying a transaction correctly between zero rated and outside scope matters for return boxes, input-tax recovery calculations and audit explanations.

Reverse Charge Mechanism for Imported Services

Imported services are a key risk area. Under the reverse charge mechanism, VAT becomes the responsibility of the UAE recipient rather than the foreign supplier. A simple pattern appears in practice:

• The foreign supplier issues an invoice without UAE VAT.
• The UAE VAT-registered customer accounts for output VAT on the value of the service in its VAT return.
• The same amount is usually claimed as input VAT in the same return if the service relates to fully taxable activities.
• The net cash effect can be nil, but the transaction still needs to be recorded, evidenced and reported.

Failure to apply the reverse charge correctly often shows up during Federal Tax Authority (FTA) audits as missing output VAT, even when the business believed that no tax applied.

Practical Sector Examples for Clear Understanding

The rules become clearer when seen in real cases.

• A Dubai marketing agency designs an online campaign for a retailer in Europe, paid by the foreign head office. If the benefit of the service is enjoyed outside the UAE and the client has no UAE establishment, the supply may qualify as an export of services at zero percent.
• A UAE engineering firm sends a team to Saudi Arabia to supervise a project for its UAE parent. If the parent uses the results in Dubai, the service can be standard rated in the UAE, regardless of where the staff travelled.
• A UAE company licenses software from a US supplier under an annual subscription. The US invoice carries no UAE VAT, so the UAE customer usually applies the reverse charge.
• A free zone entity providing management support to a foreign subsidiary must consider both free zone corporate tax incentives and VAT export-of-services tests, keeping documentation ready for both regimes.

Each example shows how contract wording, project reports and internal memos help evidence where the benefit truly sits. 

A Dubai trading company that exports goods and pays VAT on local costs also looks at VAT refund in Dubai airport schemes when staff travel and incur eligible expenses, making sure claims follow FTA rules.

Contracts and Documentation

Clear paperwork often decides how defensible a VAT position is. Helpful habits include:

• Setting out in contracts where the customer is established, which branch receives the service and where the work is intended to be used.
• Including VAT clauses that cover reverse charge, customer VAT numbers and responsibility for foreign indirect taxes.
• Keeping evidence of the customer’s overseas presence, such as registration certificates, commercial licences or foreign tax numbers.
• Maintaining project files that show where staff worked, how deliverables were used and which entity made key decisions.

When these points are agreed early, tax reviews later become a question of linking evidence to rules instead of debating commercial intent.

Arnifi’s Role In Cross Border VAT Planning

Professional support makes a difference once a business starts mixing local work with regional or global contracts. Arnifi works as one of the trusted VAT consultants in Dubai, helping firms that mix local and overseas contracts understand how UAE VAT rules apply in daily work.

Arnifi’s UAE tax team frequently reviews service flows for consulting firms, agencies and technology businesses that bill both UAE and foreign clients.

Arnifi also offers VAT registration services in Dubai for new entities that plan to supply cross border services, so registration, contracts and VAT mapping start in sync.

Arnifi also helps finance teams build reverse charge registers so imported services are captured directly from accounts-payable reports rather than spotted at year end.

Compliance Checklist for Upcoming Periods

Before each VAT period closes, a short checklist keeps cross border services under control:

• Scan accounts-payable ledgers for foreign supplier invoices, and confirm which ones need reverse charge entries.
• Review sales ledgers for invoices issued to foreign customers and check that export-of-services conditions are documented.
• Confirm that VAT on mixed-use services has been apportioned correctly where part of the benefit relates to exempt activities.
• Ensure that supporting documents, such as contracts and correspondence, are stored with the tax file for each period.

Regular use of such a list helps keep errors small and makes later reconciliations faster.

Working With Specialists on Cross Border VAT

VAT on services provided outside the UAE sits at the junction of law, contracts and business models. Arnifi’s VAT services in Dubai help boards and finance leaders map complex cross border flows into simple VAT steps they can follow each month.

Misclassification can lead to double taxation, denied input VAT or penalties for under-declared output VAT. Arnifi supports boards and finance leaders by turning complex cross border flows into simple VAT maps, linked directly to chart-of-accounts codes and invoice templates. 

With that structure in place, ongoing compliance becomes a routine part of monthly closing rather than a once-a-year scramble.

FAQs

Is VAT always zero rated when a UAE firm invoices a foreign client for services?

No. Zero rating depends on where the customer is established and where the service is used. If a UAE establishment benefits from the work, standard-rated VAT may still apply.

How does a UAE business know when to apply the reverse charge on imported services?

If a UAE VAT-registered business buys services from a foreign supplier with no UAE registration and the service supports its UAE activity, reverse charge VAT usually applies, subject to specific exemptions.

Do free zone companies follow different VAT rules for services supplied abroad?

Free zone status mainly affects corporate tax and customs. VAT on services for free zone entities still follows federal VAT law, including place-of-supply and export-of-services conditions.

What evidence should be kept for zero rated exported services?

Helpful evidence includes customer VAT or tax numbers abroad, contracts showing an overseas establishment, proof of customer location at the time of supply and internal documents explaining where the service is used.

Can a UAE business recover input VAT on services bought for both UAE and foreign projects?

Input VAT is usually recoverable to the extent that the services relate to taxable or zero rated activities. Where services support both taxable and exempt supplies, a reasonable apportionment method should be documented and applied consistently.