VAT in the Maritime Industry

While Some Vessel-Related Services Benefit from Zero-Rating, Surveys and Audits Generally do not — Highlighting the Need for Careful VAT Analysis in the UAE.

The UAE’s VAT regime contains specific provisions for services supplied in connection with qualifying means of transport, including ships and vessels. Businesses engaged in the shipping industry often raise questions about whether technical services such as vessel surveys, audits, and certifications can qualify for zero-rating under the Executive Regulations. Understanding the difference between what qualifies and what does not is crucial for correct VAT compliance.

Zero-Rating of Services: The Relevant Provisions

Under the Executive Regulations of the UAE VAT Law, zero-rating can apply in two contexts:

Export of Services (Article 31) – Services provided to a customer outside the UAE who does not have a place of residence in the UAE, subject to conditions.
Services in Connection with Means of Transport (Article 35) – Services supplied directly in connection with qualifying means of transport (e.g., ships and aircraft) when these are for the purposes of operating, repairing, maintaining, or converting such transport.

The Key Question: Do Vessel Surveys, Certifications and Audits Qualify?

Vessel survey and audit services generally involve inspections to confirm that a ship is in a satisfactory operating condition, that safety standards and international conventions are met, and that all required documentation is in place. These services typically result in reports and certifications but do not involve physical work on the vessel itself.

Direct connection with the means of transport – The service must have a clear and immediate link to the vessel.
Purpose of the service – The service must be for operating, repairing, maintaining, or converting the vessel.

While surveys and audits are indeed directly connected to vessels, they are not considered activities that operate, repair, maintain, or convert a vessel. They do not ensure the mechanical functioning of the ship or restore or preserve its physical condition. Instead, they provide assurance, documentation, and compliance confirmation.

Why Export Rules Don’t Apply

Export of services (Article 31) could potentially apply if the customer is outside the UAE. However, one important limitation is that services cannot be zero-rated under export rules if they are directly connected with goods located in the UAE. Since the vessels are physically present in the UAE when surveys and audits are carried out, this condition is not satisfied.

The Resulting VAT Treatment

Because surveys and audits of vessels are not considered services supplied for the purpose of operating, repairing, maintaining, or converting the means of transport — and because they are directly connected to vessels located in the UAE — they do not qualify for zero-rating under either Article 31 or Article 35 of the Executive Regulations.

Accordingly, these services are subject to VAT at the standard rate of 5% in the UAE.

Key Takeaways for Businesses

Surveys and audits of vessels in the UAE are subject to VAT at 5%.
Zero-rating is only available for services that physically operate, repair, maintain, or convert vessels.
Export of services rules do not apply if the service is directly connected to goods located in the UAE.
Businesses engaged in vessel-related services should carefully evaluate their supplies against the law to ensure correct VAT treatment.

This explanation helps shipping and maritime service providers understand the line between services eligible for zero-rating and those that are taxable, ensuring compliance and avoiding future disputes.