There have been some changes to specific provisions of the UAE Value Added Tax (VAT) regime announced by the UAE Ministry of Finance. The Federal Decree-Law No. 18 of 2022 introduces 24 changes.
VAT is a type of indirect tax based on general consumption. Most countries impose VAT on most purchases and sales of goods and services, making it one of the most common types of consumption tax.
The UAE introduced VAT at 5% in January 2018. There have been a few amendments to the Value Added Tax (VAT) provisions, which took effect in 2018. Changes will be effective on 1 January 2023.
Some amendments are clarifications, while others state changes in tax positions. Generally, these amendments have both technical and administrative implications. Here are some of the most important amendments:
1. Definitions – Article 1
VAT law amendment introduces new definitions for the following crucial VAT law terms:
- Relevant Charitable Activities
- Pure Hydrocarbons
- Tax Evasion
- Tax Audit
- Tax Assessment
- Voluntary Disclosures, and
- Tax Procedures Law
2. Supply of Goods – Article 5
It makes clear that, among other things, the supply of goods is the entry into a contract between more than two parties involving the transfer of goods at a later date.
3. Other out-of-scope transactions – Article 7
VAT Law Amendment introduced a new clause allowing the Executive Regulations to specify other transactions outside the scope of VAT.
4. Registration Exceptions – Article 15
If all your supplies are zero-rated and/or you no longer make any other supplies besides zero-rated supplies, you may be eligible for an exception from VAT registration.
5. Cases of Tax Deregistration – Article 21
The FTA has the power to deregister registered persons forcibly, when necessary, under Article 21. Deregistration of taxable persons does not prevent the FTA from claiming tax obligations or administrative penalties.
6. Special Date of Supply – Article 26
Tax invoices will be issued 14 days after the supply date under Article 26.
7. Place of Supply of Goods (continuous supply) – Article 27
This article of the VAT Law currently describes three scenarios in which the supply takes place in UAE, but includes exportation.
8. Place of residency (Agent/Principal) – Article 33
Under Article 33, the principal’s place of residence becomes the agent’s place of residence.
9. Recovery of Recoverable Input Tax in the Tax Period (Imports) – Article 55
This amendment permits the taxable person to recover VAT paid or declared on goods and services imported before registration (upon meeting certain conditions).
10. The mechanism for Output Tax Adjustment – Article 62
To adjust output tax, the taxpayer must issue a Tax Credit Note within 14 days of issuing the tax invoice.
11. Conditions and Requirements for Issuing Tax Invoices (obligation to pay VAT) – Article 65
The FTA will require the taxable person to pay VAT if he or she issues a tax invoice stating VAT or receives VAT.
12. Reverse Charge – Article 48
Reverse charge mechanisms apply to the supply of hydrocarbons in any form under clauses (3) and (5) of Article 48 of the current VAT Law.
The amended VAT Law restricts it to only Pure Hydrocarbons. Furthermore, Article 48 now contains Clause (8), which allows the Cabinet to issue a Decision identifying other goods and services that are subject to reverse charges.
13. New Article 79 bis – Statute of Limitations
Article 79 bis of the VAT law states:
- The FTA cannot conduct a Tax Audit or issue a Tax Assessment after 5 years from the end of the relevant Tax Period, except in certain circumstances.
- It is possible for the FTA to conduct a Tax Audit or issue a Tax Assessment after the end of the relevant Tax Period if it notifies the taxable person before the end of the fifth year. However, the Tax Audit or Assessment must be completed within 4 years of the notice being given.
- A Tax Audit or Assessment may be conducted or issued by the FTA only after the 5th year of the relevant Tax Period if the Audit or Assessment relates to a Voluntary Disclosure submitted during the fifth year of the applicable Tax Period, provided that the Audit or Assessment is completed/issued within 1 year of the date the Voluntary Disclosure was submitted.
- Separate cabinet decisions may also amend the referred periods.
- Disclosures made five years after the relevant tax period end will not be acceptable.
- If Tax Evasion or Non-Tax Registration occurs, the FTA may conduct a Tax Audit or issue a Tax Assessment within 15 years of the end of the tax period in which evasion took place.
What does it mean for you?
Further, the UAE is set to introduce a 9% federal corporate tax on business profits starting 1 June 2023, in addition to VAT changes coming into effect on 1 January 2023.
With CZTA’s tax specialists on hand, you can get a comprehensive assessment of your current tax situation, advise on appropriate tax treatment, prepare clarification requests, or have your case brought before the FTA. As an FTA-approved tax agency, CZTA can help you navigate a wide range of difficult tax situations.