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VAT on Oil & Gas Sector in United Arab Emirates

The oil and gas business in the United Arab Emirates is one area where the VAT implications are complex enough to be misconstrued. The distinction between crude and non-crude items, as well as the distinction between selling to registered and unregistered customers, can all add to the complexity.


Let's try to make the VAT implications for the oil and gas sector in the UAE as simple as possible. The first thing we need to figure out is if we're going to make a local supply or an export sale.

• Article 45(1) of the UAE VAT Law states that export sales of oil and gas products are zero-rated.
• Another distinction to make if you're making a local supply of oil & gas-related products is whether it's crude oil/gas or non-crude oil/gas, as both are subject to different VAT rates.

Different VAT Rates in the United Arab Emirates
In the United Arab Emirates, there are two different VAT rates.
• 5% Value Added Tax (Standard Rate)
• 0% Value Added Tax (Zero-rate)
Any taxable item can be zero-rated or standard-rated when the law stipulates so.
Taxability of Local Oil and Gas Supply
The delivery of non-crude oil and natural gas in the local area is subject to standard pricing (5 percent )
According to article 45(12) of the UAE VAT Law, local supplies of crude oil and natural gas are subject to a zero-rate (0%) tax.
Taxability of Local Oil and Gas Supply
• The delivery of non-crude oil and natural gas in the local area is subject to standard pricing (5 percent )
• According to article 45(12) of the UAE VAT Law, local supplies of crude oil and natural gas are subject to a zero-rate (0%) tax.
The responsibility for recording VAT on oil and gas supplies
Following the determination of the applicable VAT rate for each oil and gas supply, the next step is to determine who will be responsible for recording VAT and reporting it in the VAT return.

Unless it is sold to an unregistered person, a registered person who is not the reseller, or a registered person who does not utilize the oil/gas to produce any form of energy, the recipient of the supply of hydrocarbons (oil & gas) is generally liable for recording VAT responsibility. This would be reported using the Reverse Charge Mechanism, which records the VAT liability of the recipient rather than the seller of the goods or services. Consequently, whether the local supply of the relevant hydrocarbons is zero-rate or standard-rate, if it is delivered to a registered recipient who will resale it or produce energy from it, the responsibility for recording VAT will be transferred to the recipient of the product. It is important to note that even if you are purchasing zero-rated crude oil, the recipient must record it using the reverse charge procedure. Although the provider will not record output VAT in this scenario, it can still collect input VAT from such suppliers under the standard norms of input VAT recoverability. Written confirmation from the buyer who claims to be a non-crude oil/gas reseller or an energy producer is required. In addition to this responsibility, the seller must validate the recipient's tax registration number to ensure that the goods are delivered to a registered person. If the supplier fails to do so, he or she may be held liable for VAT obligations. To summarize, in order to appropriately record VAT-related obligations, one must pay attention to the nature of the oil/gas commodity being delivered as well as to whom it is supplied.

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