For the first time since the introduction of VAT in 2018, the Federal Tax Authority (FTA) of the UAE has made extensive revisions to Executive Regulations of the Law through Cabinet Decision 100 of 2024. This new UAE VAT update is under Cabinet Decision No. 52 of 2017 and introduces important changes that will take effect on November 15, 2024. These amendments reflect the FTA’s commitment to adapt to the evolving business landscape in the UAE.

UAE VAT Update:  Key Amendments and Their Implications

Financial Services

One of the most notable revisions to the UAE VAT update is the introduction of a Digital Asset definition under Article 1. Digital assets are now recognized as “digital representations of value that can be traded or transferred digitally and used for investment purposes, excluding fiat currencies or securities.”

Additionally, Article 42 (2) has been amended to include several services under the definition of financial services:

• Providing investment fund management services independently for a fee for funds licensed by a competent authority in the state.
• Transferring ownership of digital assets, including cryptocurrencies.
• Converting digital assets.
• Safeguarding and managing digital assets.

Furthermore, Article 42 (3) now specifies that the following services are exempt from VAT:

• Investment fund management services.
• Transferring ownership of digital assets.
• Converting digital assets.

Notably, the last two exemptions will be applicable retrospectively from January 1, 2018. This is a significant development that clarifies the taxation of digital assets, an area of growing interest and investment in the UAE according to the new UAE VAT update.

Exception to Supply and Deemed Supply

The Exception to Supply definition in the UAE VAT update now includes the transfer of ownership or disposal rights of government buildings and real estate assets between government entities. This amendment simplifies the asset transfer process for government entities, ensuring that such transactions are not subject to VAT, effective from January 1, 2023.

Moreover, the Deemed Supply Exception provision has been extended in the UAE VAT update, allowing up to AED 250,000 for suppliers who are government entities or charitable organizations, provided the recipient is also a government entity or charitable organization within a twelve-month period. This extension offers relief to charitable organizations and government entities, enabling them to operate without the additional burden of VAT.

Profit Margin Scheme

According to the new UAE VAT update, Article 29 has clarified that the purchase price under the Profit Margin Scheme includes all costs and fees incurred to purchase the goods. This removes ambiguity and provides businesses with clear guidance on calculating the purchase price under this scheme.

Proof for Export of Goods

In the current UAE VAT update, for the Export of Goods, Article 30 now specifies the necessary documents to prove that an export has occurred, thus making it eligible for treatment as a zero-rated supply. Acceptable documents include:

• Customs declaration and commercial evidence proving the export.
• Shipping certificate and official evidence proving the export.
• Customs declaration proving customs suspension if the goods are under customs suspension.

The clarifications surrounding “official evidence” and “commercial evidence” will facilitate smoother export processes for UAE exporters who have faced challenges in obtaining Exit Certificates.

Zero-rated Services

Article 31 for the Export of Services according to the new UAE VAT update specifies that services will not be zero-rated if their place of supply is within the UAE, according to certain scenarios outlined in Articles 30 and 31 of the UAE VAT Law. This change requires businesses to conduct detailed analyses to understand the implications on their operations and ensure compliance with the new regulations.

Composite Supply

The amendment to Article 46 (1) now states that tax treatment should be based on the overall nature of the supply if no main component is included in a composite supply. This change provides clarity on treating composite supplies for VAT purposes.

Input VAT

Article 53 in the current UAE VAT update now allows for the recovery of input VAT for health insurance, including enhanced health insurance for employees and their dependents within the limits of one spouse and three children under the age of eighteen. This amendment is a significant relief for businesses, enabling them to recover VAT on essential employee benefits.

Additionally, Article 55 in the UAE VAT update clarifies the end of the tax year in various scenarios, including tax registration cancellation and changes in tax group membership. For input VAT apportionment calculations, if the tax year is less than twelve months, the AED 250,000 limit for actual use should be proportionately adjusted. Taxable persons can request FTA approval to use a fixed apportionment percentage based on the previous tax year, benefiting businesses with consistent annual profiles.

Tax Invoices

The timeline for issuing Tax Invoices has been adjusted in the UAE VAT update, particularly for simplified and summary tax invoices. A simplified tax invoice must be issued on the date of supply, while a summary tax invoice must be issued within 14 days from the end of the calendar month that includes the date of supply. These changes require businesses to comply with invoicing requirements promptly, thereby reducing the risk of non-compliance.

The amendments to the UAE VAT framework represent a significant evolution in the taxation landscape. Taxpayers must carefully review these changes and assess their impact on their operations and compliance obligations. Navigating these amendments will require thorough analysis and informed decision-making to ensure adherence to the new regulations. Understanding these updates is crucial for businesses operating in the UAE as they adapt to the evolving VAT landscape.

How MS Can Assist You with the Latest UAE VAT Update

At MS, we help businesses stay compliant with the latest UAE VAT updates. Our team provides expert guidance on the new regulations, ensuring you understand how they affect your operations. We offer support in key areas like VAT exemptions, input VAT recovery, and tax invoicing. With our ongoing compliance services, we make sure your business remains up to date with the evolving VAT framework.