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As per the VAT Executive regulations, the transport qualifies for zero-rating under Clause 4 of Article 45 of the Federal Decree-Law No. 8 of 2017 on Value Added Tax. This transport includes the supply of a bus or train i.e. to be used for public transportation of 10 or more passengers. This Public Clarification impacts upon the VAT liability of the supply of the vehicles and not the VAT liability of transportation services.

If the transport vehicle, that are designed to transport a specific category of individuals, such as school students or employees of a business, do not meet the conditions for zero-rating provisions. Such means of transport shall therefore be subject to the standard rate of VAT. The supply of the means of transport as zero rated has no impact on the VAT liability for the supply of transportation services. The VAT liability of supplying transportation services shall be determined based on whether the transportation is local (and therefore exempt from VAT) or international (and therefore zero rated).

As per the FTA’s public clarification issue vide circular No.: VATP007, states the features of Public transport. In order to determine whether a bus or train is for public transportation, following factors would be indicative:

• Allow passengers to pay for the transportation or to indicate they possess a ticket
• 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.

Following means of transport will not be qualifying as public transport and will be charged at 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.

However, it is to be noted that VAT incurred on costs which directly relate to the provision of exempt local transport services are not recoverable. Therefore, where local transport is made for a charge to a defined group of people, rather than the general public, any VAT incurred on the costs of purchasing the means of transport, fuel etc. in order to provide that service is not recoverable.

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