VAT Implications on Transactions Where Goods Are Supplied to a UAE Customer but Delivered Outside the UAE

Background

In today’s global business landscape, it’s common for companies to purchase goods from a supplier and instruct the supplier to deliver those goods directly to the end customer — a practice often referred to as the “Bill to Ship to” model.

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But when these transactions involve both UAE and non-UAE parties, VAT treatment can become a grey area. Understanding how VAT applies in these cases is critical to remain compliant and avoid costly mistakes.

While there are several variations of this model, this blog focuses on one specific scenario:

 A UAE-based supplier sells goods to a UAE-based buyer, but — per the buyer’s instruction — the goods are delivered directly to a person located outside the UAE.

Example used in this document  

Delivers the goods directly to Blue Mart on Instruction of Smart LLC

Example used in this document

• Bright LLC – A UAE-based supplier

• Smart LLC – A UAE-based buyer

• Blue Mart Ltd– An overseas customer based in India

Scenario:

1. Smart LLC purchases electronics from Bright LLC

2. Instead of taking delivery in the UAE, Smart LLC instructs Bright LLC to deliver the goods directly to their international client, Blue Mart, in India.

3. Bright LLC raises the invoice to Smart LLC, while the goods are physically shipped to Blue Mart outside the UAE.

General VAT Treatment

 The general rule under UAE VAT law states that the supply of goods (except for exempt supplies) is subject to a 5% VAT. However, when goods are delivered outside the UAE, the supply may qualify as an export of goods and be subject to a 0% VAT rate.

Goods are usually eligible to be treated as exports when they are physically exported to a location outside the UAE, and the exporter retains sufficient documentation, such as customer declarations, exit certificates, and other relevant proof of export.

Important

However, in the case of the Bill to Ship to model, the VAT treatment needs to be assessed carefully, as this model involves two separate transactions. The taxability of each transaction must be evaluated properly. There can be scenarios where different parts of the overall transaction attract different types of VAT treatment.

VAT Treatment in case of given example

In case of Bright, Smart and Blue mart Ltd it constitutes of two Transactions.

 

1. SALE OF GOODS BY BRIGHT LLC TO SMART LLC (UAE BASED SUPPLY)
   

   

   The title of the goods is transferred to Smart LLC within the UAE, and therefore, the transaction between Bright LLC and Smart LLC constitutes a local supply, which is subject to 5% VAT under UAE VAT Law.
   

2. Sale of goods by Smart LLC to Blue Mart ltd (International)

The supply of goods from Smart LLC to Blue Mart LLC qualifies as a zero-rated export, provided that all relevant conditions under UAE VAT Law are satisfied. In this scenario, Bright LLC is merely acting as an agent facilitating the export on behalf of Smart LLC, not as the exporter or seller. The export documentation should clearly reflect this arrangement indicating that Smart LLC is the supplier and owner of the goods at the time of export, and that Bright LLC is acting solely in a logistical or representative capacity.

Analysis:

The transaction in this scenario involves two separate supplies:

1. Sale 1: Bright LLC sells goods to Smart LLC — both are UAE-based entities. Since the title of the goods is transferred within the UAE, this transaction constitutes a local supply and is subject to 5% VAT under UAE VAT Law.

2. Sale 2: Smart LLC sells goods to Blue Mart LLC, an overseas customer. This is a supply of goods from the UAE to a location outside the UAE, and if all export conditions are met, it qualifies as a zero-rated export.

Although it may appear that Bright LLC is exporting goods directly, it's important to note that the ownership of the goods first passes from Bright LLC to Smart LLC within the UAE. 

• Bright LLC then merely facilitates the transportation of goods to Blue Mart LLC on behalf of Smart LLC, acting as a logistics agent, not as the exporter or supplier for VAT purposes.

• The actual exporter is Smart LLC, which holds the title to the goods at the time of export and is the party responsible for meeting the conditions for zero-rating under UAE VAT.

• This distinction is critical. The 0% VAT export treatment applies only to the supply made by Smart LLC to Blue Mart LLC, not to the supply between Bright LLC and Smart LLC.

To support VAT treatment for Export, it is important that:

• Customs and export documents explicitly indicate that Smart LLC is the exporter, and Bright LLC is merely facilitating the shipment.

• All relevant export evidence, such as commercial invoices, exit certificates, and customer declarations, reflect Smart LLC as the supplier/exporter.

Failure to document this correctly may lead to incorrect VAT treatment or denial of zero-rating on export by the authorities.

Key Takeaways

Comprehensive VAT Assessment Is Essential

Even if a transaction looks simple, the VAT implications can be complex when multiple parties and cross-border deliveries are involved. Each supply must be assessed individually.

Substance Over Form

It’s not about who physically ships the goods — it’s about who legally owns them at the time of export. Even if the goods are sent outside the UAE, a local supply may occur first, and this must be taxed accordingly.

Documentation Is Key

To qualify for zero-rated export VAT, businesses must retain accurate and complete export documentation. Missing or incorrect documents could result in penalties or denied claims.

Refer to FTA Guidance

The FTA Automotive Sector VAT Guide (VATGAM1) specifically addresses Bill to Ship to models. It’s a useful resource for interpreting similar cross-border transaction structures.

Final Word

The VAT treatment of cross-border deliveries involving UAE buyers and suppliers is not always straightforward. Don’t assume that shipping goods out of the UAE automatically qualifies for 0% VAT. Understanding ownership flow, ensuring proper documentation, and applying the correct VAT treatment at each step is critical.

If you’re navigating complex VAT transactions or Bill to Ship to models — make sure you’re doing it right or seek professional help to stay compliant.