“Leverage cross-border service origination to enable tax-aligned revenue segmentation and compliance recalibration.”
A UAE-based company providing Value Added Telecommunications Services engaged us to assess the correct VAT treatment for its regional operations. The company operated under a commercial agreement with a licensed UAE telecommunications provider, supplying subscription-based services such as SMS alerts, mobile content, and interactive digital features. While the contracting party was a UAE entity, the services were ultimately delivered to and used by natural persons located in Iraq. These services were initiated and consumed entirely outside the UAE, creating uncertainty about how they should be treated under UAE VAT law.
Upon initial review, the services appeared to fall outside the scope of UAE VAT. This interpretation was grounded in Article 23 of Federal Decree-Law No. 8 of 2017, which sets out the place of supply rules for telecommunications and electronic services. The law clearly states that the place of supply shall be in the UAE to the extent that the service is used and enjoyed in the UAE, and outside the UAE to the extent it is used and enjoyed abroad. In this case, the actual consumption and use of the service occurred in Iraq, a non-Implementing State, suggesting that the supply was not subject to UAE VAT. Based solely on this Decree-Law provision, the company initially assumed that its supplies to end users abroad were outside the scope of VAT and did not qualify as taxable.
However, a deeper analysis revealed that this conclusion did not fully align with the Executive Regulation issued under the same law. Article 32(1)(b) of Cabinet Decision No. 52 of 2017 — the Executive Regulation to the Decree-Law — provides a specific treatment for exported telecommunications services. It states that a supply of telecommunications services by a UAE-resident supplier to a person who is not a telecommunications supplier, where the service is initiated outside the Implementing States, shall be zero-rated. This provision not only brings such supplies into the scope of UAE VAT but also qualifies them for zero-rating, thereby preserving the supplier’s right to input VAT recovery.
Applying this framework to the client’s situation, it was evident that the supplier was based in the UAE, the end users were natural persons outside the UAE, and the services were initiated and consumed in Iraq — a non-Implementing State. Furthermore, the end recipients were not telecommunications suppliers themselves. As a result, the supply met all the conditions required for zero-rating under Article 32 of the Executive Regulation. While the Decree-Law led to an initial assumption of out-of-scope treatment, the Executive Regulation provided a more specific legal framework that overrode that presumption and brought the transaction into the VAT regime — at a zero rate.
We advised the company to immediately stop applying the standard 5% VAT rate on these supplies and instead treat them as zero-rated exports of telecommunications services. We guided the client through the preparation of Voluntary Disclosures to correct previously misclassified periods, allowing them to reclaim overpaid VAT. Where VAT had been collected from their UAE contracting party, we advised refunding the overcharged amount to prevent unjust enrichment and maintain a clean audit trail. In parallel, we supported the company in updating its invoicing structure, segmenting revenue sources, and preparing documentation to demonstrate that the services were indeed initiated and consumed outside the UAE. This included generating geolocation data, usage logs, and contract flow mapping to support the zero-rating position.
By the conclusion of the engagement, the company had fully realigned its VAT treatment with the applicable provisions of UAE tax law. It achieved compliance, recovered input VAT, and significantly reduced its exposure to future audit risks. This case demonstrates the importance of not only referencing the Decree-Law but also applying the Executive Regulation where it provides a more specific mechanism — in this case, transforming a supply that initially appears out of scope into a reportable and recoverable zero-rated transaction.
