The concept of ‘Deemed Supply’ (DS) is included in scope of tax as per UAE VAT law (Law). Definition of DS as per law includes supply of goods or services made without consideration. The law also states that supplies made without consideration would not be DSif: a) no input VAT (IV) is recovered for the related goods or services procured OR;b)Output VAT (OV) at the cost value of such DS is paid.
Export provisions under law provide for zero rating of VAT for both supply of goods and services, upon meeting prescribed conditions.In case where such conditions are met, OV at zero rate is to be paid by exporter (EXP) and at the same time full IV on procurement of supplies is available. In case of export of DS, whether zero rating of VAT could still be availed if such EXP recovers full IV on procurement element – one view could be that OV is still paid at zero percent and therefore full IV is available,whereas,another view could also be that EXP is required to pay OV at 5% to recover IVor simply it does not recover IV on procurement element at all(considering conditions of DS)! Export provisions under law do not specify that it includes the concept of DS neither DS provisions specify any specific treatment in case of export.
Fundamentally, zero rating on exports is provided in order to promote export and extend benefit by providing refund of corresponding IV and also that taxes are not exported as part of trade. However, when an EXP does not earn consideration from export supply whether said benefit could still be extended? In India, under GST Law framework, consideration for exports is typically to be received in convertible foreign currency (or in local currency if permitted by RBI) – so as to earn crucial foreign currency for the country and remains one of the preconditions for receiving benefit of refund of IV. Given that similar precondition is not part of law, one may question about indifference on both situations – i.e., to earn on not to earn any consideration on export and still receive benefit from authority; or whether authority may require EXP to pay VAT at 5% on DSon the basis that ideology to simply promote exports (and thereby trade) from UAE is not met. Therefore, dilemma remains on whether zero rating of export of deemed supplies is available, until clarified!
Article 1,2, 11, 12 and 37 of UAE VAT Decree Law No. 8 of 2017
Article 30 and 31 of UAE VAT Regulations to Decree Law
 Section 2(6)(iv) of Integrated Goods And Services Tax Act, 2017, India