FEDERAL TAX AUTHORITY CLARIFICATION ON PUBLIC TRANSPORTATION

INTRODUCTION

VATP007 has been introduced to discuss the definition of public transport and for identifying the buses or trains which are eligible to be supplied at zero rates. This clarification does not affect the VAT liability of the transportation services which have been supplied under Article 45(2) ie international transport of passenger and goods or under Article 46(4) ie local passenger transport services.   

PUBLIC TRANSPORTATION

Public transportation refers to all means of mass transport which are used to transport all the individuals without specifying any category. Private transport, on the other hand, is not available for all individuals. Thus the buses or trains which are openly available for use by any person without exception are considered as those which are designed or adapted for public transportation. They qualify for being supplied at zero rates.

On the other hand, buses or trains which are designed or adapted for a specific class or group of people or are only available for a specific class or group of people will be considered to be adopted or designed for use for private transportation. They qualify for being supplied at the standard rate.

FEATURES OF PUBLIC TRANSPORTATION

The following factors should be considered to determine whether a bus or train is designed or adapted for use of public transportation or not :

• If there is a branding either within or outside the vehicle which indicates that transportation is available to all
• If a feature exists which :

1. Either allow the passengers to pay for the transportation
2. Indicates that they possess a ticket e.g a payment booth, ticket scanner or a device to take payment
3. Indicates that the means of transport is regulated by an entity regulating public transportation in the Emirate

• If third parties are allowed to place advertising material on or within the means of transport
• The means of transport is to be used for transporting members of the public without excluding a specific group

APPLICATION TO SPECIFIC CIRCUMSTANCES
The supply following means of transport shall be subject to the standard rate of the VAT and would not be considered to be used for public transportation:

• School buses;
• Buses which are used to transport groups of employees or workers to or from a place of work;
• Shuttle buses which are used to transport hotel guests to other locations e.g. a mall, airport, park, or other tourist attraction.
   

Since the use of the above-mentioned means of transport is restricted to a particular group of people rather than the general public, they do not come under the definition of public transportation.

VAT LIABILITY OF TRANSPORTATION SERVICES

VAT incurred on the costs that directly relate to the provision of exempt local transport services are not recoverable. However, VAT incurred on the cost of purchasing the means of transport, fuel etc which is used for a defined group of people rather than the general public is not recoverable.