Let’s use an example to understand “bill-to-ship” supplies.

Abdul Hardware, a hardware product distributor in the UAE, placed an order with National Traders in India. The order is for the supply of 1,000 quantities of aluminum ladders and instructions to ship the ladders to Prime Hardware in Iran. Prime Hardware is a customer of Abdul Hardware.

Bill shipped to UAE

As shown above, this transaction has two parts:

The first part of the transaction-the transaction between Abdul Hardware and National Traders: National Traders is the supplier of the ladder, and Abdul Hardware is the buyer. Therefore, the national trader issued a transaction receipt to Abdul Hardware and shipped the goods to Prime Hardware in Iran as instructed.

The second part of the transaction-between Abdul hardware and Prime hardware: Abdul hardware is the supplier, and Prime Hardware is the buyer. Abdul billed Prime Hardware and provided the necessary documents in favor of Prime Hardware, which enabled him to take over the goods.

Since the implementation of VAT in the UAE on January 1, 2018, what impact will it have on the UAE’s VAT on “invoicing to shipping” supplies?

Broadly speaking, the supply from delivery to delivery is considered to be outside the scope of UAE VAT. This is because the place of supply is outside the UAE, because the goods are sold outside the UAE. Subsequently, the supply responsibility of UAE distributors is not within the scope of UAE VAT.

Let us consider the example of Abdul hardware discussed above to understand what VAT means to the supply chain from invoicing to shipping.

Value-added tax meaning

In the example above, according to Abdul Hardware’s instructions, National Traders shipped aluminum ladders to Prime Hardware in Iran. For the second part of the transaction between Abdul hardware and Prime hardware, both transactions will be deemed to be outside the scope of UAE VAT. Therefore, the 5% VAT will not apply to these transactions.