Transport Sector VAT – UAE:

Transport can fall under 3 VAT treatments:

Zero rated (0%)

Exempt (0% but no input recovery)

Standard rated (5%)

Understanding which type applies depends on:

Type of transport

Purpose (passenger vs goods)

Local or international.

Vehicle type (bus, limo, taxi, truck)

Whether the passenger pays directly or through the company contract.

Zero rated transport:

1-International transport falls under zero-rated. Examples include:

Emirates flight from Dubai to London

Sea Cargo from Jebel Ali Port to Saudi Arabia

Shipping goods from Abu Dhabi to Oman

Transport from UAE to another GCC State

2-Local Passenger Transport. Passenger transport within UAE is zero-rated only if it is in a qualifying means of transport:

Qualifying Means of Transport include:

Public buses

Taxi services (RTA taxis)

Metro

Trams

Ferries

Airplanes

Desert safari buses (if considered mass-passenger transport)

3-Transport of goods that is international:

Freight forwarding from Dubai → Germany

Container shipping from Jebel Ali → India

Export courier services (DHL / FedEx)

Includes:

Loading

Off-loading

Handling

Ancillary services relating to international movement

Standard rated transport:

1-Passenger transport not in a qualifying vehicle.5% applies when transport is done using:

Limousines

Private cars

Luxury buses

VIP transportation

Hotel shuttle service if charged separately

Tourist charter vehicles (private bookings)

Examples:

Hotel Limo from airport to downtown.

2- Local Transport of Goods (within UAE)

Examples:

Truck delivery from Sharjah → Dubai

Courier service (within UAE)

Warehouse to warehouse deliveries

On-demand cargo/van delivery (e.g., Careem Box, Quik, Aramex local)

3-Ancillary services NOT related to international transport such as:

Warehousing

Local cargo handling

Loading/unloading inside UAE

Short-distance relocation services

If not part of export/import mandatory logistics = 5%

VAT Exempt:

1-Public Passenger transport sold at regulated price.

Technically many public passenger transports are zero-rated, not exempt.

But some government-subsidized services operate as exempt, meaning:

No VAT on sales

No Input VAT recovery

2-Insurance related to public transport

If included in ticket price → exempt component.

Documentation required for VAT compliance:

Tax Invoice (for 5% services)

Zero rated invoice (mentioning VAT 0%)

Transport contracts

Airway bills

Customs export documents

Driver logs/trip sheets (for goods)

Ticket issuance system logs (for passenger transport).

Proper VAT registration certificate

Common Errors in Transport VAT:

Charging 5% on zero-rated public transport

Applying 0% incorrectly to limo/private services

Zero-rating local courier services

Missing export documentation leading to VAT disputes

Not applying reverse charge on international service providers

Incorrect input VAT claims for employee transport

VAT Treatment of goods transport:

Transporting goods has different VAT rules than passenger transport.

1-Standard rated goods transport (5%)>default rule.

Examples:

Moving furniture within UAE (e.g., movers)

Courier companies delivering packages within UAE

Cargo trucks transporting goods between warehouses in UAE

Delivery of construction materials within UAE

Local logistics services (within one emirate or inter-emirate)

2-Zero-rated goods transport-International

Shipping goods from Dubai to Saudi Arabia

Air cargo from Dubai to London

Sea freight from Jebel Ali to India

Road transport from UAE to Oman

VAT on Transport related services (Ancillary Services):

Transport sector includes many supporting services which may be standard-rated even when transport is zero-rated.

1-Standard-Rated (5%) Ancillary Services Include:

Loading and unloading

Packing and re-packing

Warehousing and storage

Container handling charges

Transport insurance (normally 5%)

Vehicle leasing and renting

Parking services

Toll charges (Salik) — not VAT-able but fees charged by agents may attract VAT

2-Zero rated Ancillary Services include:

Freight forwarding related to exports/imports

Customs clearance fees on international shipments

Port services related to export movement

Example:

If a logistics company in Dubai handles export documentation & trucking of goods to Jeddah → 0% VAT because service is connected to an international journey.

VAT Treatment of vehicle rentals in transport sector:

Vehicle rental VAT depends on driver availability, customer type and purpose of use:

1-Vehicle Rental with Driver:

This is treated as passenger transport. i.e. 0% VAT.

Examples:

Chauffeur-driven cars

Staff transportation buses

School buses

RTA taxi operations (contract basis)

2-Vehicle Rental without driver:

It is subjected to 5% VAT.

Examples:

Rent-a-car companies (e.g., Thrifty, Shift, Dollar)

Leasing delivery vans without drivers

VAT on transport in Designated Zones:

Transport of goods from mainland to designated zones is subjected to 5% VAT.

Transport of goods within designated zones is treated like exports (0% VAT).

Passenger transport inside a designated zone follows the same rule as mainland (zero rated if qualifying).

Example:

Moving goods from Jebel Ali Free Zone to Dubai mainland is subjected to 5% VAT.

VAT on food delivery, courier and ecommerce:

Food delivery and ecommerce delivery includes:

The product sold

The delivery service itself

VAT Treatment:

Delivery service → always 5% VAT (not considered passenger transport)

Rider transport is not zero-rated passenger transport

Platform fees (Careem, Talabat, Deliveroo) → 5% VAT

Example:

Talabat delivery fee AED 6 → VAT 5% applies.

VAT for transport companies (Taxi, bus, logistics, courier):

1-Taxi and bus operators (private bus companies and RTA):

Passenger transport 0% VAT

Advertising income on buses 5% VAT

Rental of buses without driver 5% VAT

2-Courier /Delivery companies:

Domestic courier → 5%

International courier → 0%

3-Logistics and Shipping companies:

Local goods transport → 5%

Sea/air freight international → 0%

VAT Input Tax Recovery in Transport Sector:

Transport companies often have mixed supplies (0% and 5%).

Recoverable input VAT:

Fuel costs

Vehicle maintenance

Spare parts

IT systems (fleet management)

Office rent, utilities

Blocked / Non-Recoverable Input VAT:

Passenger motor vehicles for personal use

Entertainment expenses

Employee benefits not required for work

Partial Exemption:

If a company makes both 0% and 5% supplies, it must use a pro-rata method to recover VAT.

Example:

If only 40% revenue is taxable, then only 40% of VAT on overheads can be recovered.

Practical Examples (UAE based):

School bus company -0% VAT (qualifying passenger transport)

Desert Safari company-5% VAT because sightseeing is not passenger transport

Goods Truck delivering materials from Dubai to Sharjah -5% VAT

Courier company shipping from UAE to UK -0% VAT (international transport)

Rent-a-car (self-drive)-5% VAT.

Taxi Company Providing Chauffeur Services-0% VAT (qualifying passenger transport)

Checklist for VAT Compliance for Transport Sector:

Confirm if service is passenger or goods transport.

Check if journey is domestic or international.

Confirm if vehicle is designed for passenger transport.

Check whether ancillary services apply.

Review contracts to separate taxable & zero-rated supplies.

Maintain journey logs for audits (especially for mixed supplies).