On October 2, 2024, the United Arab Emirates (UAE) Federal Tax Authority (FTA) released amendments to the Executive Regulation of Federal Decree-Law No. 8 of 2017, which focuses on Value Added Tax (VAT). These changes were made after the Cabinet issued Decision No. (100) of 2024 and will take effect on November 15, 2024. The goal of these amendments is to provide clearer rules and more details on VAT procedures. They also aim to bring the regulations in line with other related tax laws, like the Excise Tax. Businesses in the UAE need to pay close attention to these changes, as they may impact how VAT is handled in daily operations.
Among the many amendments to the Executive Regulation, several stand out as having the most widespread effects. These include updates to how VAT applies to the export of goods and services, financial services, and the treatment of supplies with more than one component. These changes are important for businesses involved in exporting goods, offering financial services, or dealing with composite supplies.
The amendments to Article 30 focus on the export of goods. Now, it is easier for businesses to apply the zero rate of VAT when exporting goods. Businesses are no longer required to keep all types of export-related documents. Instead, they can keep one of three options: a customs declaration and commercial evidence, a shipping certificate and official evidence, or just a customs declaration that shows the suspension of customs duties. This change reduces the paperwork for businesses and aligns the VAT rules with other laws, like the Excise Tax law.
Export of services, covered under Article 31, has also seen important changes. To apply the zero rate on the export of services, an extra condition has been added. The services must not be considered performed in the UAE or in a Designated Zone according to special rules about the place of supply. These rules apply to services like real estate, electronic services, and telecommunications. This change means that some services that used to be zero-rated may now be subject to VAT. For example, services related to real estate located in the UAE may now be taxed. There is also a change to an anti-avoidance rule in this article, which is meant to prevent businesses from misusing VAT exemptions.
For businesses in the financial sector, Article 42 introduces new VAT exemptions. Financial services are generally exempt from VAT, but the amendment adds some specific services to the list of exemptions. These include managing investment funds, transferring ownership of virtual assets like cryptocurrencies, and converting virtual assets. These changes are applied retroactively, starting from January 1, 2018. Fund managers now need to carefully analyze if their services qualify for these VAT exemptions and how this might affect their VAT recovery. Businesses dealing with virtual assets should also review their past VAT filings, as they may need to submit corrections or voluntary disclosures. The definition of virtual assets in this context includes anything that can be traded or converted digitally for investment purposes, but it does not include fiat currencies or securities.
The next important amendment is in Article 46, which deals with supplies that have more than one component. A new paragraph has been added that addresses situations where there is no clear principal component in a supply. In these cases, the VAT treatment should be based on the nature of the supply as a whole. This helps businesses better understand how to handle VAT on mixed supplies, where multiple goods or services are sold together.
In addition to these major changes, there are several other updates that businesses need to be aware of. For example, Article 1 adds new definitions, including definitions for virtual assets and notifications. This is important because the definition of “Notification” now applies to any person, not just the concerned taxpayer or their representatives. Article 2 expands the definition of real estate supplies to include any transfer of ownership, not just sales and tenancy contracts. There are also changes to how ownership transfers of government buildings are treated. Article 3 clarifies that transfers between government entities are not considered supplies, meaning they are not subject to VAT.
Other changes include updates to the rules about deemed supplies and voluntary VAT registration. Article 5 clarifies that if the value of a supply of goods to a single recipient over 12 months is less than AED 500, it is not considered a deemed supply. The threshold is much higher for government entities and charities, at AED 250,000. Article 8 changes the conditions for businesses that want to register for VAT voluntarily. Now, they must show the FTA that they are carrying out business in the UAE or intend to make taxable supplies. This also includes supplies made outside the UAE that would be taxable if made within the country.
There are specific amendments in Articles 14, 15, and 16 that deal with tax deregistration, which is when a business stops being a VAT registrant. Businesses should review these updates to ensure they are complying with the latest rules. Article 38 removes the definition of “relevant charitable activity,” which may affect how charities handle their VAT obligations.
For businesses that provide health insurance to employees, Article 53 has an important change. Now, input VAT on health insurance provided to employees and their families (up to one spouse and three children) is recoverable, meaning businesses can claim back the VAT they paid on these services. This could reduce costs for businesses offering health benefits.
Article 55 allows businesses to apply to the FTA to use a specific recovery percentage when calculating input VAT recovery. This is useful for businesses with complex VAT situations, as it simplifies the process of determining how much VAT they can claim back.
There is also a new rule in Article 59 about simplified tax invoices. Businesses can no longer issue a simplified tax invoice when the reverse charge mechanism applies. This mechanism is used when a business buys services from outside the UAE, and the buyer is responsible for accounting for the VAT.
Another notable change is in Article 60, which allows an agent to issue a credit note on behalf of a principal, provided that proper records are kept. This helps businesses streamline their VAT procedures when working with agents.
These changes to the UAE VAT Executive Regulation are broad and will affect many industries. It is crucial for businesses in all sectors to review these amendments to understand how they impact their VAT position. Fund managers and businesses dealing with virtual assets should pay particular attention to the new exemptions and analyze how these changes affect their VAT recovery.
The retrospective nature of some of these changes means that businesses may need to review past VAT returns and submit voluntary disclosures if necessary. By carefully reviewing the amendments, businesses can ensure they remain compliant with UAE tax laws and avoid potential penalties. The amendments also provide businesses with opportunities to optimize their VAT recovery and reduce costs, especially in areas like health insurance and fund management.
The updates to the UAE’s VAT regulations will have significant impacts across various sectors. From exports to virtual assets and financial services, businesses need to stay informed about how these changes affect their operations. With the amendments coming into effect on November 15, 2024, businesses have a short window to prepare and ensure they comply with the new rules.
