UAE VAT Treatment of Goods imported under DDP terms from Designated Zone

What is DDP arrangement?

In a DDP arrangement, the supplier is responsible for delivering the goods at the destination of buyer and paying all costs in bringing the goods to the destination including import duties and VAT. Risk and title to the goods are transferred to the buyer at the destination i.e., on delivery.

Example / situation to be analysed:

1. Designated zone company (Supplier) sells goods to mainland company under DDP terms.
2. Good imported by UAE mainland company (Customer), under their import code. On account of same, VAT will get auto populated in Box 6 of the UAE mainland company.

What will be time and place of supply for goods sold under DDP?

It is to be noted, that when sale is made on a DDP basis, goods are physically located in the mainland i.e., where the date and place of supply crystallized.

The supply will be subject to VAT and will attract standard rate of VAT (5% or 0% based on product, below example is drawn with an assumption that it’s a 5% standard rated supply).

This position may apply irrespective of which party (customer or supplier) acted as the “importer on record” for customs (import) purposes.

Point to be noted: being the importer of record is not a conclusive evidence of the ownership the goods (goods may be imported by agent also on-behalf of principle).

What action to be completed, in the event of above transaction’s?

1. at the time of import, the customer was not the owner of the goods and VAT on imported gets prepopulated in the VAT return (Box 6) of the customer. This may require adjustments in the VAT returns of the customer and supplier.
2. The customer and supplier would be required to make adjustments in Box No. 7 of the VAT return.

• The customer would need to make a deduction (negative adjustment) of the value of goods imported (which would have been automatically pre-populated in Box No. 6 of the VAT return); and
• supplierwould need to declare the value of goods imported, as positive adjustment in Box No.7 of the VAT return.

1. On account of above, the value of the imported goods would get reflected in the VAT return of the actual owner of the goods i.e., supplier, and supplier would then be entitled to recover the VAT (as declared in Box No. 7 of the VAT Return) under RCM in Box No. 10 of the VAT Return as per applicable VAT recovery position.
2. To complete above steps of adjustment in Box No. 7, customer and supplier would need to agree in writing to make the adjustments stated in the above points. Furthermore, both parties will need to retain the evidence of this written agreement and transactional documents for future reference / records.
3. Now since, the goods are assumed to be in ownership of supplier when goods were imported, supplier may be required to issue tax invoice with standard rated supply (5%), which will be separately reported under Box 1.

In the event, where sales were on DDP, and VAT is not been accounted for on supplies that should have been subjected to VAT (as stated above), you may be required to assess for adjustment in upcoming VAT return “or”required to disclose the same under voluntary disclosure (VD).

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