VAT on supply of means of transportation (a bus or train) that is to be used for public transportation
This Public Clarification VATP007 impacts upon the VAT liability of the supply of the VEHICLES THEMSELVES, and does not affect the VAT liability of TRANSPORTATION SERVICES.
Q: To which all supplies do this clarification apply?
According to Clause 3 of Article 34 of the Executive Regulations, one of the categories of a means of transport which shall qualify for zero rating is “A supply of a bus or train that is designed or adapted to be used for public transportation of 10 or more passengers”.
Identifying those buses or trains which qualify to be supplied at the zero rate under this provision:
Qualifying means of transport: This category includes the supply of a bus or train that is designed or adapted to be used for public transportation of 10 or more passengers.
Only buses or trains which are designed or adapted to be used for the mass transport of individuals, without being restricted to a specific category of users, shall qualify to be supplied at the zero rate.
As a result, those means of transport which are designed to transport a specific category of individuals, such as school students or employees of a business, do not meet the conditions to be treated as a qualifying means of transport for the purposes of the zero-rating provisions. Such means of transport shall therefore be subject to the standard rate of VAT.
Q: To which all supplies this clarification does not apply?
This public clarification does not affect the following transportation services:
- International transport of passengers and goods, which is zero-rated
- Local passenger transport services, which is exempt from VAT.
Q: How to identify whether a supply of a means of transportation qualifies to consider as zero rated supply or not?
Whether or not the original supply of the means of transport qualified for zero rating has no impact on the VAT liability of any charges made for the supply of transportation services.
Difference between “private transportation” and “public transportation”:
Private transportation of individuals is interpreted as all means of transportation used to transport a specific group of people under contracts.
In contrast, means of transport used for ‘public transportation’ shall be interpreted as all means of mass transportation used to transport all individuals without specifying any category. The difference between the two forms of transportation therefore means that public transportation should be available for all individuals without exception.
FTA considers the following factors would be indicative to identify public transportation:
- Features exist which allow passengers to pay for the transportation or to indicate they possess a ticket e.g. a payment booth, ticket scanner or device to take payment;
- There is branding either within or outside the vehicle advertising the transport service, indicating the transportation is available to all;
- There is branding or other features indicating regulation of the means of transport by the entity regulating public transportation in the Emirate of operation
- There is evidence that the means of transport is required to comply with certain provisions or specifications, or there is a requirement to pay for a specific test determined by the entity regulating public transportation in the Emirate of operation, before being approved for use to transport passengers;
- Features exist which allow the placement of advertising materials by third parties on or within the means of transport;
- The intended use of the means of transport is to transport members of the public without exception or limitation to a specific group
Application to specific circumstances
Based on the above, the following means of transport shall not be considered to be used for public transportation and the supply of such means shall be subject to VAT at the standard rate:
- School buses
- Buses used to transport groups of employees or workers to or from a place of work;
- Shuttle buses used to transport hotel guests to other locations e.g. a mall, airport, park, or other tourist attraction
The examples above are not considered to be used for public transportation on the basis that their use is restricted to one particular group of people, rather than the general public, for example, school students, employees of a business or hotel guests.
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