The ship chandling industry is one essential pillar of the thriving maritime sector in the UAE. Ship chandlers facilitate the operational functionality of a vessel, ensuring it has all provisions, engineering support products, fuels, and maintenance supplies for its next journey.
One of the most important and least understood components of Ship Chandling Business is VAT, duties/taxes, import taxes and customs charges. Understanding all of these things helps create compliance and profitability.
Ship chandling operates in a strictly regulatory regime and even small mistakes with customs taxes or duties may cause delays or cash fines. As international trade activities through the UAE Ports continues to rise, the customs framework has become more organized or systematic and transparent in commercial transactions than ever, but at a greater risk of scrutiny.
Understanding Customs Duties /taxes will allow the accurate classification of supplies and further knowledge of any potential exemptions. Understanding VAT regulations will enable ship chandlers to know when a particular transaction is zero-rated and when the applicable rate is the standard VAT rate.
In the UAE, the standard VAT rate is 5%. However, special provisions apply to the maritime sector. Supplies made to “qualifying means of transport” — that is, commercial vessels engaged in international operations — are zero-rated, meaning no VAT is charged on sales, yet the business can still recover input VAT on its purchases.
To be eligible for qualification, the vessel should be employed for commercial activities outside of UAE waters. Proper documentation, including the ship’s registration, one or more voyage plans and one or more stamped receipts from the vessel listing the delivered supplies or provisions, is required to establish eligibility.
Supplies delivered to local vessels, which stay in UAE waters or the UAE market, would be charged at the standard rate (5%), thus document storage is paramount to the supply of goods not being reclassified by the tax authorities.
Some ship chandlers mistakenly believe that all supplies made to ships are eligible for a zero-rated supply, and they then face tax adjustments and fines. Others do not keep appropriate records which becomes difficult during an audit for exempting the supply of goods based on reasons like usage, vessel, etc.
Another frequent oversight involves overlooking import tax calculations. Import tax is typically levied on goods entering the UAE, based on their CIF (Cost, Insurance, and Freight) value. When goods are stored in bonded warehouses or free zones, payment can be deferred — but failure to track their movement correctly may trigger unexpected customs charges later.
Customs Duties in the UAE are generally fixed at 5%, although exemptions exist for specific categories. For ship chandlers, the treatment depends on where the goods are stored and how they are supplied.
Goods imported and stored in non-bonded warehouses attract a 5% customs duty immediately. Nonetheless, paying duty on goods that are in free zones or bonded warehouses can be postponed until they are sold in the domestic market or delivered to a non-qualifying vessel. Generally, supplies for international ships are duty-free, as long as proper documentation regarding export and vessel is maintained.
Duties can also be deferred when re-exporting to GCC or international destinations, which again adds to the benefits of conducting business through UAE free zones.active.
Although the tax rate may seem straightforward, an issue as simple as hidden customs charges may impact a company’s bottom line. There may be administrative costs, inspection fees and storage charges that needed to be addressed during the customs clearing process. Failing to have accurate documentation can result in demurrage charges, and delays, which will significantly disrupt vessel schedules as well.
Working with experienced logistics agents for your shipments, and having a well-thought out customs checklist can alleviate these unplanned costs.
Accurate documentation is very important for compliance. There should be a record for each shipment. The record will consist of:
• Commercial invoice and packing list
• Bill of lading or airway bill
• Certificate of origin
• Import/export declaration
• Proof of vessel registration and voyage details
It is a good idea to keep record files electronically so that you can quickly access them during audit. A good practice is to ensure your accounting software tracks both VAT and customs movements to ensure the commercial records and customs records are in agreement.
1. Free Zones: If operating from a free zone, a business can defer or eliminate customs duties on export/re-exported goods.
2. Professional Advice: Speak with VAT and customs experts to ensure that your treatment of tax is correct.
3. Keep Records Current: Keep records of all customs and tax documentation for 5 years.
4. Train Staff: Take the time to train your staff on import tax and customs procedures to reduce action errors.
5. Inventory Planning: Plan your inventory between bonded and non-bonded warehousing to maximize costs.
At Al Baraka Shipchandlers LLC, we understand the daily challenges faced by maritime suppliers. Our company has become one of the top ship chandlers in the UAE, trusted by shipping companies and vessel operators for delivering quality, quantity, and reliability.
Our services entail the supply of provisions, technical stores, and marine equipment for onshore and offshore locations 24/7. We pride ourselves on being customer focused, ensuring that our customers have access to qualified personnel and after sales service, responsive to every ship we supply.
With careful consideration to comply with customs taxes and duties, we offer our customers options to avoid incurring customs charges, or delays with paid supplies.
