Compliance that travels well. Destination-based tax treatment, redefined
A UAE-based travel and tourism company engaged our firm to review the VAT treatment of its service offerings. The business was primarily involved in the facilitation of outbound tour packages, including international hotel bookings, transport arrangements, guided excursions, visa support, and other travel-related services for UAE residents traveling abroad. Although the company was VAT-registered, it had been incorrectly applying the standard 5% VAT rate to its invoices for these outbound services. This raised a significant compliance concern, as UAE VAT law prohibits misclassification of such services, and the company was at risk of both over-collecting VAT and misreporting it to the Federal Tax Authority (FTA).
According to Clause 1(c) of Article 45 of Federal Decree-Law No. 8 of 2017, services that consist of the “facilitation of outbound tour packages”—defined as the packaging of one or more tourism products and services consumed outside the UAE, including accommodation, meals, transport, and activities—are eligible for zero-rating, provided the place of consumption is outside the Implementing States. In this case, while the arrangements were coordinated from within the UAE, the services were entirely used abroad, clearly qualifying for zero-rated VAT treatment.
Our team began with a comprehensive review of the company’s invoicing practices, financial records, and service delivery flows. We confirmed that the primary business activity met the legal definition of outbound tour facilitation and that applying 5% VAT was both incorrect and financially disadvantageous. A significant portion of the company’s revenue had been subject to VAT that should not have been charged.
Our rectification strategy included:
- Halting the application of 5% VAT on outbound tour package invoices
- Revising future invoice templates to reflect correct VAT classification in compliance with Article 59 of the Executive Regulations
- Segmenting services between standard-rated domestic offerings and zero-rated export services
- Assisting in the correction of previous VAT returns through Voluntary Disclosures to reclaim overpaid VAT and facilitating the repayment of overcharged amounts to affected clients
- Drafting an internal VAT treatment policy to guide the future classification of travel services
- Preparing formal communication to the Federal Tax Authority (FTA), where required, to explain and support the adjustments made in the Voluntary Disclosures
Additionally, we trained the client’s internal finance and operations teams on identifying zero-rated services and handling documentation required to support their VAT position. This included preparing for FTA scrutiny, aligning financial reporting systems, and enhancing invoice-level transparency.
This case exemplifies the importance of understanding not just where a service is billed or arranged, but where it is actually consumed. By correcting the VAT treatment of outbound tour packages and ensuring full compliance with UAE VAT legislation, the company was able to recover overpaid tax, mitigate risk of penalties, and align its operations with best practices in tax governance. Ultimately, our intervention helped the client protect its financial integrity while restoring regulatory confidence.
