UAE: Key amendments introduced in the current VAT law

On September 26, 2022, the President His Highness Sheikh Mohamed bin Zayed Al Nahyan issued the Federal Decree-Law No.18 of 2022, amending some provisions of the Federal Decree-Law No. 8 of 2017 on value added tax (VAT). The amendments will take effect from January 1, 2023.

The amendment in the current law can be classified into three main categories. In the first category, we can say that more clarification has been provided in the existing provisions of the law. Many new provisions have been added, and we can categorise them under the second category. In the third category, we can include the references that state that more clarification will be provided in the revised VAT executive regulations.

Clarification provided in the current VAT law

The current VAT law is carrying the wording “Entry into a contract between two parties…,” which has now been replaced with “Entry into a contract between two or more parties…”. The addition of the words has clarified the provision of the law. However, based on the essence of the law, where the agreement was among more than two parties, the correct tax position was even earlier being adopted [Article 5(2)].

Article 26(1) of the law has been rephrased. In the current VAT law, it was clearly stated that the date of supply “does not exceed one year from the date of the provision of such Goods and Services.” In the revised law, it has been rephrased and added as a separate sub-clause 26(1)(d), which will not change the interpretation of the law.

Where the agent regularly exercises the right of negotiation and enters into agreements in favour of the principal, or the agent maintains a stock of goods to fulfil supply agreements for the principal regularly, that should be the place of residence of the principal, and it has been clarified in the article 33 of the revised VAT law.

Addition to the current VAT law

The option to avail registration exceptions has been provided to registered taxable persons subject to fully zero-rated supplies, and it has been clearly stated in the current VAT Law [article 15].

Subclause 21(2) has been added where the FTA has been empowered. From the effective date of the revised law, the FTA may issue a tax deregistration decision if the FTA finds that the continuity of such tax registration may prejudice the integrity of the tax system.

Article 27(3)(a)(4) has been added, which states that where clause 1 of article 26 (that deals with the continuous supplies) applies and the ownership of goods is transferred in the State, then the place of supply of the goods will be in the state.

In article 30(8), the place of supply of transport-related services has been added. It has been stated that the place of supply for the transportation services or transport-related services shall be the place from where the transportation starts.

The import of means of transportation, import of goods and services related to means of transportation, import of rescue aircraft or vessels, import of crude oil and natural gas, import of related basic healthcare goods, and import of precious metals (if imported for investment purposes) will also be considered as zero-rated supply as added in the Article 45.

Reverse charge will be applied only to pure hydrocarbons as newly defined in the revised law, where these pure hydrocarbons are being used for the production or distribution of any form of energy as required in Article 48. In the current law, reverse charge is applicable to hydrocarbons instead of pure hydrocarbons.

To claim the input tax on the imports, businesses are required to have the invoices and import documents like bills of entry for the goods [Article 55]. If these documents are not available, businesses will not be able to claim input tax, but they will be liable to pay output tax on behalf of non-resident suppliers under the reverse charge mechanism.

Government entities and charities can claim full input tax if they have incurred expenses for the sovereign activities of government entities and the relevant charitable activities, respectively, subject to the general exceptions rules [Article 57].

A taxable person will be able to adjust output tax after the date of supply if the tax was charged in error or tax treatment was applied in error [Article 61]. Adjusting output tax where tax treatment was applied in error is missing in the current VAT law.

Now registered businesses are required to issue a tax credit note within 14 days from the date it was established to adjust the output tax [Article 62]. In the current law, there is no specific timeline for issuing a tax credit note.

Any person receiving an amount as tax or issuing a tax Invoice in respect of an amount must pay such amount to the FTA [Article 65]. The payment of the tax upon issuing any tax invoice was not given in this article which has been added now.

The new article 79(bis), with the title “Statute of Limitation”, has been added to the revised VAT law, which defines the timeline for the FTA to conduct the audit or issue a tax assessment.

References in the revised VAT law

In many places, it has been mentioned in the revised law that the references/clarification will be provided in the revised VAT executive regulations.

Mahar Afzal is a managing partner at Kress Cooper Management Consultants. The above is not an official but a personal opinion of the writer based on the public consultation document on corporate tax. For any queries/clarifications, please write to him at compliance@kresscooper.com