Skip links

EU and UAE launch free trade talks: What it means for VAT and indirect tax systems

Author: Published on: Published in: News and Insights

The European Union (EU) and the United Arab Emirates (UAE) have officially launched negotiations for a free trade agreement (FTA), marking a significant step in strengthening economic ties between the two trading blocs. As talks progress, businesses involved in cross-border trade between the EU and UAE should pay close attention, not just to the potential elimination of tariffs, but to what these changes could mean for VAT compliance, customs duties, and indirect tax setup within ERP systems.

What’s driving the EU–UAE trade talks?

Announced in June 2025, the FTA discussions form part of the EU’s Global Gateway initiative, which aims to build deeper trade relationships with strategic partners. For the UAE, this agreement aligns with its Comprehensive Economic Partnership Agreements (CEPA) strategy, under which it has already formed similar deals with several other countries.

The core tax-relevant objectives include:

  • Reducing tariffs and simplifying customs procedures

  • Enabling smoother cross-border digital transactions

  • Supporting sustainability-linked trade reforms

  • Anticipating alignment on VAT and origin-based compliance

What changes could affect indirect tax?

While negotiations are in their early stages, a number of indirect tax developments are likely to emerge from the agreement:

1. Tariff changes and customs treatment

EU exports to the UAE — including capital equipment and goods with high customs values — could see duties reduced or removed. In return, UAE-origin goods entering the EU may also benefit from preferential duty treatment.

From a VAT and customs perspective, businesses will need to reassess:

  • VAT recoverability in the UAE for EU exporters

  • Duty deferral schemes and how they impact VAT accounting

  • Whether new tariff codes affect tax logic in ERP systems

2. Simplified origin and customs declarations

The FTA may introduce shared rules of origin and faster clearance procedures. These could impact indirect tax in areas such as:

  • Determination of supply chain VAT obligations (e.g. first point of entry vs final delivery)

  • Automation of customs values and duty/VAT calculation in ERP systems

  • Increased reliance on digital documentation and e-invoicing integration

3. Sustainability and carbon-linked obligations

Although not a direct VAT change, the application of carbon border adjustments (such as the EU’s CBAM) could indirectly influence how VAT is calculated on imported goods, particularly if environmental charges are factored into the customs value.

4. Digital trade and VAT harmonisation

As both the EU and UAE look to digitise their tax environments, businesses may see:

  • Convergence around place-of-supply rules for digital goods and services

  • Possible UAE participation in structured e-invoicing or reporting regimes

  • Additional scrutiny around VAT treatment of platform-based and remote transactions

What should businesses prepare for?

ERP and tax system adjustments

Organisations operating in Oracle, SAP, NetSuite or similar platforms may need to implement:

  • New tax flags linked to FTA eligibility and duty relief

  • Revised VAT determination rules based on origin and destination logic

  • Updates to reporting structures to account for new declarations or exemptions

VAT registration and reporting obligations

Even with tariff relief, VAT remains a key issue. For example:

  • EU-based suppliers may face UAE VAT obligations under local or reverse charge frameworks

  • UAE-based sellers exporting to EU consumers could trigger OSS/IOSS thresholds

  • Cross-border chain transactions will need new compliance checks under both regimes

Contractual and pricing considerations

Shifts in duty and VAT liability may require businesses to revisit:

  • Tax clauses in international contracts

  • Delivery terms that affect VAT timing and jurisdiction

  • Internal controls around cost-to-serve and pricing transparency

Looking ahead: opportunity and obligation

While the EU–UAE free trade agreement promises new commercial opportunities, it also introduces potential complexity for indirect tax compliance. Every business involved in this corridor should begin reviewing its VAT and customs exposure now, particularly within tax determination engines and ERP configurations.

🔗 To read the full press release from the European Commission, visit:
https://europa.eu/newsroom/ecpc-failover/pdf/ip-25-1252_en.pdf

administrator

Peter authors much of our most popular news and blog content, covering all the latest trends and insights from across the indirect tax industry. He specialises in video production and is behind our successful podcast series, Tax People Aren’t Boring. Peter also produces many of our most popular features, such as VAT infographics and social media content.

You may also like