Facts
A logistics company (Company) based in the UAE acts as an intermediary in arranging the transportation of goods for its clients. The transportation itself takes place entirely outside the UAE.
The Company contracts a foreign carrier to transport goods on behalf of its client. If the client delays unloading beyond the free time allowed in the contract, the carrier charges demurrage to the logistics company. The Company, in turn, passes the demurrage costs to the client as a reim-bursement or a separate charge.
Conversely, if the client unloads the goods earlier than the allowed time, the carrier pays a despatch incentive to the Company. The Company pass-es these earnings to the client.
The demurrage and despatch charges arise from contractual agreements between the carrier, the logistics company, and the client. While the logis-tics company does not operate the transport vehicles, it arranges transpor-tation and related charges. However, all agreements with the carrier and the client are made in the name of the logistics company. The contract with the carrier remains distinct from the contract with the client.
Neither the foreign client nor the foreign carrier is registered in the UAE.
Questions
- Should the demurrage amount paid by the logistics company to the carrier be subject to UAE VAT under the Reverse Charge Mechanism (RCM), considering that the transportation occurs outside the UAE?
- When the logistics company charges the client for demurrage, should this be considered an onward taxable supply, or is it a disbursement outside the scope of VAT?
- If the logistics company receives a despatch incentive from the carri-er, should this be treated as a VATable supply in the UAE?
- When the logistics company passes the despatch earnings to the cli-ent, should RCM be applied?
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Author: Andrey Nikonov
