A shipment lands in Dubai. You clear it for your customer, and three weeks later you raise the invoice that recharges what it cost: the customs duty, the import VAT, and the broker’s declaration fee.
What VAT do you charge on those three lines?
Most answers we see are one of two. Either the whole recharge is taxed at 5% — because it is on an invoice, and invoices have VAT on them. Or the whole recharge is marked zero-rated, because “it’s international freight”. Both are wrong, and they are wrong in different directions.
The correct treatment is not a matter of preference or of what your accounting system defaults to. It follows from a published test, and once you apply it those three lines answer themselves — with three different answers, one of which depends on a detail most forwarders never check.
The test: did you pay it as their agent, or did you buy it?
The FTA sets this out in Public Clarification VATP013. The question is whether the cost you are passing on is a disbursement or a reimbursement.
A disbursement is a payment you made on behalf of your customer, for something that was legally theirs to pay. You acted as their agent. The money coming back to you is not payment for anything you supplied, so it is outside the scope of VAT.
A reimbursement is a cost you incurred, for something supplied to you, which you recover as part of what you charge. It is part of the price of your own service and takes your service’s VAT treatment.
VATP013 gives six conditions for a disbursement. All of them have to hold:
1. The other person is the recipient of the goods or services.
2. The responsibility to pay for them is the other party’s.
3. The invoice or tax invoice is in the name of the other party.
4. The other party authorised you to pay on their behalf.
5. The goods or services are clearly additional to the supplies you make to them.
6. The payment is shown separately on your invoice and you recover the exact amount paid, without a mark-up.
Condition 3 is the one that decides most real cases, and it is the one nobody looks at. Keep it in mind for the section on import VAT below — it is the difference between a clean recovery and an expensive mistake.
Customs duty
Duty is levied on the importer. Where the customs entry is filed in your customer’s name, your customer is the importer and the duty is their liability from the moment the goods land. You paid it so the goods would move.
Recharged at exactly what you paid, shown as its own line, that satisfies all six conditions: it is a disbursement, and it is outside the scope of VAT. Not zero-rated. Not exempt.
Import VAT: first find out who the importer of record is
This is where the common advice goes wrong, including the version of this article we published first. “Import VAT is a disbursement” is true in one case out of three, and the other two are more common.
Case 1 — your customer is VAT-registered and the goods are cleared under their own TRN. Then no import VAT is paid at the border at all. Submitting the TRN to customs lets the shipment clear, and the VAT is deferred to their next VAT return, where they declare it and recover it under the reverse-charge mechanism in the same filing. There is nothing for you to advance and nothing to recharge. If you are billing your customer for import VAT on a shipment cleared under their TRN, something has gone wrong upstream.
Case 2 — your customer is not VAT-registered. Import VAT is payable at clearance. If you advance it as their agent — entry in their name, authorised by them, recovered exactly and shown separately — the six conditions hold and the recharge is out of scope. This is the case the textbook description fits.
Case 3 — you cleared the goods under your own TRN. This happens constantly, usually for speed. And it changes everything: the input tax is attributable to you, not to your customer. Your customer cannot recover that VAT, because it was never their input tax — whatever your invoice says. Condition 3 has failed: the declaration is in your name, not theirs. So it is not a disbursement. It is a cost you incurred and are recovering, which makes it a reimbursement that follows your main supply.
Case 3 is worth dwelling on, because the damage is silent. Your customer receives a line that looks like recoverable import VAT, claims it on their return, and it is not theirs to claim. The exposure sits with them and they will not discover it until somebody asks for the customs declaration and finds another company’s name on it. If you clear under your own TRN, recover the VAT on your own return and price the shipment accordingly — do not present it to the customer as their input tax.
The declaration fee
Here the answer flips, and for a clean reason. Nobody levied a declaration fee on your customer. A broker charged you for filing an entry, the invoice is in your name, and you are recovering that cost inside the price of your service. That is a reimbursement, and it takes the treatment of the supply it belongs to.
Under Article 45 of the UAE VAT Decree-Law, international transport of goods — and services directly connected and necessary to it, which includes customs clearance, loading, unloading and handling — is zero-rated. A movement that begins and ends inside the UAE is not international transport, and is standard-rated at 5%.
So on a straightforward import for a non-registered customer, one invoice carries two out-of-scope lines and one zero-rated line. Anyone applying a single code to the whole block has part of it wrong.
Why “zero-rated” and “out of scope” are not interchangeable
This is the part that gets waved away, and the part that shows up in an audit.
Zero-rated, exempt and out-of-scope all print 0.00 on an invoice. They are indistinguishable on the page and they are three different declarations on a return. A zero-rated supply is a taxable supply at a nil rate: it belongs in your taxable turnover and it preserves your right to recover input tax. An out-of-scope amount is not a supply at all and does not belong in that figure.
Put your duty recharges through as zero-rated and you have inflated your declared taxable supplies by the value of money that was never yours. The tax due does not change. What changes is that your return stops describing your business, and the first person to reconcile your declared turnover against your revenue finds a gap nobody can explain.
This is why a treatment has to be recorded as a code rather than a typed amount. A number cannot tell the FTA which of three positions you took. A code can, and it is what the VAT return and the audit file key on.
The markup trap
A disbursement must be recovered at exact cost — condition 6, and it is the basis of the whole treatment rather than a formality.
If you paid AED 3,400 of duty and recharge AED 3,400, you moved your customer’s money. If you recharge AED 3,570 because you add 5% for handling the payment, you did not. And the consequence is not that the extra AED 170 becomes taxable — it is that the entire line stops being a disbursement. You are no longer an agent passing on a cost; you are supplying a service and charging for it, so the whole AED 3,570 is consideration for your supply and follows your main supply’s rate.
Earn margin on customs work — you should — but charge it as a clearance fee on its own line and keep the duty recharge at cost. The moment the two figures merge, a clean out-of-scope recovery becomes a taxable supply, usually without anyone noticing.
The trap on the other side: foreign VAT is not your input tax
The mirror image costs GCC forwarders real money every month and looks like a bookkeeping detail.
A UAE company clears a shipment in Saudi Arabia and pays Saudi import VAT at 15%. It appears on a document, it is unmistakably tax, and the instinct is to put it in the input-tax box.
You cannot. Input tax on a UAE return is UAE VAT. Tax charged by another state is not recoverable on your return — it is cost. The test is where the supply took place: tax is recoverable only where the place of supply is your own jurisdiction and the supplier’s registration number is on the document. A Saudi clearance for a UAE taxable person fails that, and so does the reverse — a Saudi company clearing in the UAE is in exactly the same position. The rule is symmetric, which is why it cannot be written down as a list of countries.
The practical consequence: that 15% is irrecoverable, so it belongs in the cost of the shipment. Booked hopefully into a recoverable input-VAT account, it is an asset no tax authority will ever pay, and the margin on that job is overstated by the same amount.
Why this is harder in practice than on paper
Everything above is clear enough written down. What makes it difficult is the shape the paperwork arrives in.
The customs charges do not come with the freight invoice. They arrive weeks later as a separate debit note, itemised per air waybill, frequently in the currency of the country where the goods were cleared rather than the currency you bill in. A Saudi clearance for a Dubai customer produces a note in riyals against a shipment you invoiced in dirhams — and the rate that matters is the one at the date of that document, not today’s.
By then the freight is usually invoiced and closed. So the customs recharge either gets missed entirely, or it is added to the next invoice with whatever code that invoice happens to use — which is how a duty recharge ends up standard-rated at 5%, and a real cost ends up never billed at all.
Three things have to hold, and they are operational rather than legal:
The charge attaches to the shipment, not the month. Duty of AED 3,400 belongs to one air waybill. Booked as a lump sum against a supplier account it can never be recharged to the customer who owes it, and it quietly distorts the margin on every job in the period.
Each component keeps its own identity. Duty, import VAT and the declaration fee take different treatments, so a single “customs charges” figure cannot be billed correctly however carefully somebody reads the law afterwards. Sum them and the information needed to apply the rule is already gone.
The currency travels with the amount. A note in riyals recorded as a bare number becomes a wrong figure in dirhams the moment anyone totals it. Converting at today’s rate rather than the document’s date also puts an FX difference into a recharge you told your customer was at exact cost — which, if it is large enough, is no longer at exact cost.
What good looks like
The treatment should be derived, not chosen from a dropdown by whoever raises the invoice.
Every fact needed is known by the time the recharge exists: what kind of charge it is, whose name is on the customs entry, whether it is recharged at exact cost, whether the movement is international or domestic, and which jurisdiction levied the tax. That is enough to select the position — out of scope, zero-rated or standard — without anyone forming an opinion at speed on a line that looks identical to two others needing different answers.
Two things follow from deriving it. A markup reclassifies the line automatically, because the exact-cost test is part of the derivation rather than a rule someone has to remember. And foreign tax lands in cost rather than in a reclaim, because the place-of-supply test runs on every document instead of only the ones somebody stops to think about.
The short version
Customs duty recharged at exact cost, on an entry in your customer’s name, is out of scope — not zero-rated and not exempt. Import VAT depends on whose TRN cleared the goods: under your customer’s TRN there is nothing to recharge at all, under yours it is not a disbursement and never becomes your customer’s input tax. The declaration fee is a reimbursement following your main supply — zero-rated on international transport, 5% on a domestic movement. Any markup on a duty recharge makes the whole line a taxable supply. And VAT paid in another country is never input tax on your return; it is cost, and it belongs in the cost of the job.
None of this is exotic. It is the ordinary treatment of ordinary charges that most freight businesses handle every week — which is exactly why getting it wrong is expensive: not once and visibly, but slightly, on every clearance, for years.
Sources: FTA Public Clarification VATP013 (Disbursements and Reimbursements); Federal Decree-Law No. 8 of 2017 Article 45 (zero-rated supplies, including international transport and related services); FTA guidance on import VAT and the reverse-charge mechanism.
This article describes the general position under UAE VAT law and published FTA clarifications. It is not tax advice. The treatment of any specific transaction depends on its own facts and documentation — in particular whose name is on the customs declaration — so confirm your position with your tax adviser.