Understanding how the “presence test” and “effective connection” principles determine VAT treatment for production, creative, and professional services performed for non-residents.
1. The Modern Service Economy: Global Clients, Local Execution
In the creative, media, and professional services industries, it’s increasingly common for UAE-based businesses to deliver projects on behalf of non-resident clients.
A film producer in Dubai might shoot a campaign for a European brand, a creative agency might manage photography for an international magazine, or a professional consultancy might provide on-site execution for a foreign client’s event.
While these engagements appear straightforward commercially, their VAT treatment is often less obvious. Businesses frequently assume that because the client is located abroad, the service automatically qualifies as an export of services and can therefore be zero-rated.
However, UAE VAT law introduces an additional and often misunderstood test — the presence and effective connection test — that can change the outcome entirely.
2. The Legal Foundation: Article 31 and the Export of Services
Under the UAE VAT Executive Regulations, services supplied to a non-resident person may qualify for zero-rating only if certain conditions are met.
In simple terms, the law distinguishes between where the client resides and where the service is effectively consumed.
To qualify as an export of services (and hence zero-rated at 0%), the following must all apply:
| # | Condition (text unchanged) |
|---|---|
| 1. | The recipient of the service has no place of residence in the UAE. |
| 2. | The recipient is outside the UAE when the service is performed. |
| 3. | The service is not directly connected with real estate or movable property in the UAE. |
| 4. | The benefit of the service is not received by another person in the UAE (unless that person is making fully taxable supplies). |
This framework is designed to ensure that VAT neutrality applies only to services that truly benefit a person or business outside the UAE.
3. The ‘Presence’ Test: How Being in the UAE Can Change the Tax Outcome
The tricky part comes with the presence test under Article 31(2).
Even when a client is technically non-resident, their physical or effective presence in the UAE at the time of service delivery can disqualify the zero-rating.
How it works:
| • | A client is considered to be outside the UAE if any visit to the UAE is short-term (less than one month) and not effectively connected with the service being supplied. |
| • | However, if the client’s visit is directly related to the performance of the service — for example, attending a shoot, supervising a project, or directing creative work — then their presence is deemed effectively connected. |
Once that connection exists, the supply is no longer treated as an export of services. It becomes a local supply subject to 5% VAT.
In short:
If your overseas client physically participates in or influences the work done in the UAE, that presence can make your supply taxable.
4. Composite Supplies: One Contract, One VAT Treatment
Creative and production projects often involve bundled deliverables — such as hiring equipment, booking talent, arranging locations, or producing final digital assets.
VAT law treats such bundled activities under the principle of a single composite supply.
If several elements are closely linked and together form one overall supply, the entire supply takes the VAT treatment of the principal component.
For example:
- •If the main objective of a project is the provision of on-site production services, and those services are performed while the client is present in the UAE, the whole project — including ancillary elements such as location hire, car rentals, or editing — becomes subject to 5% VAT.
- •The fact that certain deliverables (like digital content or stock footage) are later sent abroad does not, by itself, change the VAT treatment of the overall service.
5. Key Takeaways for Service Providers
A. Presence Matters More Than Payment Location
Even if the client pays from overseas and the invoice is addressed to a foreign entity, what truly matters is where the benefit of the service is received.
If the work is performed and consumed within the UAE — with the client or their representatives actively involved — VAT at 5% must be charged.
B. Review the Purpose of the Engagement
Ask: is the service aimed at creating or executing something within the UAE?
If yes, and if the client’s team is present for that purpose, it will likely be considered effectively connected to the UAE.
C. Composite Projects Require Careful Structuring
Break down multi-part projects into clearly defined components.
Where feasible, separate purely offshore work (such as editing, post-production, or design done entirely outside the UAE) from the on-site component to preserve potential zero-rating for the offshore part.
D. Document Client Presence and Communication
Maintain clear records showing when, how, and where the client or their representatives were involved.
This documentation can be critical in demonstrating to the authorities that the client’s presence was or was not effectively connected with the supply.
6. Conclusion: The Fine Line Between Export and Local Supply
In the service industry, where the value is created and where it is consumed can be different — but for VAT, both matter equally.
The export of services provision offers genuine relief to businesses serving global clients, yet it comes with a strict set of conditions.
Even a short business visit by a non-resident client can tilt the balance from a zero-rated export to a taxable domestic supply.
Businesses in creative, consultancy, and production sectors should therefore:
- •Evaluate every project for presence and connection,
- •Clearly structure their contracts, and
- •Keep evidence to support the VAT position adopted.
By doing so, they can ensure compliance, avoid disputes, and keep their operations both tax-efficient and audit-ready.
