DL – Article (46) provides list of Supply Exempt from Tax i.e.:

1.    Financial services that are specified in the Executive Regulation of this Decree-Law.

2.    Supply of residential buildings through sale or lease, other than that which is zero-rated according to Clauses (9) and (11) of Article (45) of this Decree-Law.

3.    Supply of bare land.

4.    Supply of local passenger transport.

Let’s drill down each element, step by step (financial services is discussed in the last section).

(a)  Can we import &/or export residential building?

(b)  Can we import &/or export bare land?

(c)  Can we import &/or export LOCAL passenger transport?

I think, we understand these services/ goods cannot be imported / exported.

Now comes the interesting point on “Financial Services”

Export of Financial Services

Instances were “Financial Services” qualify under the Article (31) of the ER, Financial services will be classified as zero-rated. In this scenario, since financial services are provided outside the state, input tax can also be claimed (ER Article (52)).

Hence export of financial services, looses the classification of “Exempt Supply”.

Import of Financial Services

As per DL / ER Article (1) – Definitions, Concerned Services is defined as… Services that have been imported, where the place of supply is in the State, and would not be exempt if supplied in the State.

In case of financial services, if “financial services” are provided within the state, then it will be exempt & hence it is not covered in Concerned Services definition & resultant RCM as specified in DL Article (48) also will not apply.

Let me know, if you can identify any deviation to the discussion point.

Reference Articles:

ER – Article (42) Clause (7) – Tax Treatment of Financial Services 

7.     Where Article (31) of this Decision applies in respect of a supply of financial services, this supply should be treated as zero-rated.

ER – Article (31) Zero-rating the Export of Services 

1. The Export of Services shall be zero-rated in the following cases.

a.    If the following conditions are met:

1)   The Services are supplied to a Recipient of Services who does not have a Place of Residence in an Implementing State and who is outside the State at the time the Services are performed;

2)   The Services are not supplied directly in connection with real estate situated in the State or any improvement to the real estate or directly in connection with moveable personal assets situated in the State at the time the Services are performed.

b.    If the services are actually performed outside the Implementing States or are the arranging of services that are actually performed outside the Implementing States.

c.    If the supply consists of the facilitation of outbound tour packages, for that part of the service.

2.     For the purpose of paragraph (a) of Clause (1) of this Article, a Person shall be considered as being “outside the State” if they only have a short-term presence in the State of less than a month, or the only presence they have in the State is not effectively connected with the supply.

3.     As an exception to paragraph (a) of Clause (1) of this Article, a supply of Services shall not be zero-rated, if the supply is made under an agreement that is entered into, whether directly or indirectly, with a Recipient of Services who is a Non-Resident, if all of the following conditions are met:

a.    The performance of the Services is, or it is reasonably foreseeable that the performance of the Services will be, received in the State by another Person, including but not limited to, an employee or a director of the Non-Resident Recipient of Services.

b.    It is reasonably foreseeable, at the time the agreement is entered into, that that other Person in the State will receive the Services in the course of making supplies for which Input Tax is not recoverable in full under Article (54) of the Decree-Law.

4.     For the purposes of paragraph (c) of Clause (1) of this Article, services that consist of the “facilitation of outbound tour packages” means the services that a Taxable Person provides in packaging one or more tourism products and also services outside the Implementing States, including but not limited to such goods and services as accommodation, meals, transport, and other activities.

DL Article (54) Recoverable Input Tax 

1.    The Input Tax that is recoverable by a Taxable Person for any Tax Period is the total of Input Tax paid for Goods and Services which are used or intended to be used for making any of the following:

a.     Taxable Supplies.

b.     Supplies that are made outside the State which would have been Taxable Supplies had they been made in the State.

c.     Supplies specified in the Executive Regulation of this Decree-Law that are made outside the State, which would have been treated as exempt had they been made inside the State.

ER – Article (52) -Input Tax Recovery in Respect of Exempt Supplies 

1.    Supplies referred to in paragraph (c) of Clause (1) of Article (54) of the Decree-Law are the supplies of financial Services, where the place of supply of these Services is treated as outside the State and the Recipient of Services is outside the State at the time when the Services are performed.