The public clarification issued by the Federal Tax Authority explains the differences between public and private transportation, and explains the VAT treatment on the supply of the means of public and private transportation and not on the transportation service supplied.
What does the term “public transportation” mean?
Public transportation is any motor vehicle that transports 10 or more persons and is available to the whole public without excluding any group of people. The supply of the mean of the mean of transportation that is for the purpose of public transportation shall be zero-rated, provided that it meets the features of the public transportation, as follows:
• Means of payment for the transportation services; card scanner, payment booth, ticket issuance or any other mode of payment;
• A branding within or outside the mean of transportation that indicates that this vehicle is for public transportation without excluding any category of the public;
• A branding that explains the regulations of the means of transport by the government of the corresponding emirate;
• The mean of transportation shall be legally qualified to be used as a mean of public transportation, which means that it shall pass the necessary tests set by the government of the corresponding emirate, before being approved for use to transport passengers;
• Features within the means of transport that allows third parties to place advertising materials on or within the means of transportation; and
• The mean of transport shall be available to the whole public without excluding any category of the people.
What does the term “private transportation” mean?
The Federal Tax Authority interprets “private transportation” as all means of transportation that are intended to transport on a specific group of people under contracts. Based on that, the following are example of means of transport shall not be considered to be used for public transportation:
• School buses;
• Buses used to transport employees or workers from the place of stay to their place of work;
• Shuttle buses used to transport hotel guests from the hotel to any location, e.g. mall, park, museum, airport, or any other touristic places.
The supply of the means of the transportation shall not be qualified as zero-rated supply and shall be supplied at a standard rate.
It is important for the people who are related to the transportation business to understand that the VAT treatments explained pertain to the supply of the vehicle itself from the supplier to the transportation service provider, and not on the service supplied to the passengers using that vehicle.
Clause 2 of article 45 of the VAT law states that the international transport of passengers and goods, which starts or end in the UAE, or passes through it, shall be qualified as zero-rated. This means that any VAT paid on costs directly related to this mean of transport that is providing international transportation service (e.g. purchasing the mean of transport and other costs), shall be recoverable in full, through the normal VAT report submissions.