The UAE has introduced several amendments to the VAT framework under Federal Decree-Law No. 8 of 2017. These updates will affect businesses across various sectors especially those involved in exports, financial services, and digital assets. Below is a breakdown of the key changes.

◙ The addition of the new definition of “Virtual Assets” was introduced, i.e., Digital representation of value that can be digitally traded or converted and can be used for investment purposes and does not include digital representations of fiat currencies or financial securities. [Article 1]

◙ The scope for the supply of real estate has been extended. In addition to sales and lease, any disposal which will lead to ownership transfer from one person to another will also be considered as Supply of Goods. [Article 2]

◙ A new article has been added. According to the article, transfers of ownership or the right of use of government buildings and real estate between government entities are not considered a supply. This article is limited to government entities only and reduces administrative burden and increases operational efficiency. It appears that the grant or transfer of the right to use, exploit or utilize the government buildings, real estate assets and other projects of a similar nature from a Government Entity to another Government Entity, mentioned in the ER is applicable retrospectively as of 1 January 2023. [Article 3(bis)]

◙ Supplies without charge made by government entities/charities to other government entities/charities totaling AED 5million (i.e., AED 250,000 in VAT) or less, within a 12-month period, will not classify as deemed supplies and any excess amount should be considered as a payable tax. [Article 5]

◙ A business may only register voluntarily if it satisfies the FTA that it is carrying a business in the UAE or intends on making taxable supplies. This also includes supplies made outside the UAE which would have been taxable (or exempt) if made within UAE. [Article 8]

◙ The Tax deregistration shall not absolve a Person from having to comply with the provisions of the Decree Law and this Decision, including filing another Tax Registration application when the Tax Registration requirements are met. [Article 14]

◙ A new article has been added which specifies the conditions as mentioned below, where it grants power to the FTA to deregister a person if the FTA determines that maintaining such Tax Registration may prejudice the integrity of the Tax system.

• • The Registrant no longer meets the Tax Registration requirements according to the provisions of the Decree-Law,
  • the Registrant has not submitted an application for Tax deregistration to the Authority as specified, or the Registrant has initiated a Tax deregistration application with the Authority but has not completed such application,
  • any other conditions specified by the Authority. [Article 14(bis)]

◙ It has been stated that a member of a VAT group should be removed from the VAT group where, in addition to the cases mentioned in the same article, the member is no longer making taxable supplies. [Article 15]

◙ It has been clarified that for the purpose of calculating the profit margin, the purchase price shall include in addition to the price of the goods, any other cost and fee incurred for purchasing the goods. [Article 29]

◙ The exporter is now required to retain any of the following as evidence for direct/indirect export or customs suspension case:

• • a customs declaration, and Commercial Evidence that proves the export,
  • a Shipping Certificate and Official Evidence that prove the export, o or a customs declaration that proves the suspension arrangement of customs duties, in case the goods are put into customs suspension.

◙ FTA has also clarified the definitions of Official and Commercial evidence:

◙ Official evidence has been defined as export certificates issued by the customs authorities in the UAE or a clearance certificate issued by those authorities or the competent authorities in the UAE in connection with the goods that have left the country upon verification that the goods have left the country, or a document or a clearance certificate certified by the competent authorities at the country of destination confirming the arrival of the goods into that country.

◙ Commercial evidence has been defined as a document issued by the transportation companies/agencies as evidence that the goods have been transported and moved outside the country, including airway bill/air cargo manifest, bill of lading/sea cargo manifest, and land transport bill/land cargo manifest.

◙ Certificate of shipment has been defined as a certificate issued by the transportation companies/agencies that can be treated as commercial evidence, if such evidence is not available. [Article 30]

◙ Services falling under any of the special place of supply rules such as services of restaurants, hotels, catering, cultural, artistic, sporting events, transportation, telecommunication etc. will not be eligible for zero-rating. [Article 31]

◙ It has been clarified that the transport of goods from one place in the UAE to another place in UAE, as part of international transportation of goods, should be supplied by the same suppliers in order to qualify for zero-rating. Also, it has been clarified that the services supplied during the supply of international transportation service will be zero-rated only if they are supplied to the recipient of the transportation service. [Article 33]

◙ It has been clarified that the provisions of this Article apply, in addition to the supplies of means of transport, to the imports of means of transport. [Article 34]

◙ Additional zero-rated supply conditions have been added for services supplied directly in connection with the means of transport for the purpose of operating, repairing, maintaining or converting. These include.

• • Repair services if carried out on board of the means of transport.
  • Maintenance to include inspection and testing of the means of transport, its parts and equipment, cleaning, repainting, and other similar services.
  • Converting the means of transport, provided that, after the completion of the conversion process, the means of transport continue to satisfy the zero-rating conditions as a means of transport. [Article 35]

◙ New services have been added to the scope of financial services where these should be exempted from VAT:

◙ Investment fund management: such services are clarified as a service provided by the fund manager independently, for consideration, to funds licensed by the competent authorities in the UAE.

◙ Transfer of ownership of virtual assets including cryptocurrency. Exchange of virtual assets.

◙ Management and safeguarding of virtual assets services have also been added to the scope of financial services. However, such services would only be exempted from VAT to the extent they are not provided in return for an explicit fee or similar.

◙ It has been clarified that exemptions applicable for the transfer of ownership of virtual assets (including cryptocurrency) and the exchange of virtual assets shall have retrospective effect on services supplied from 1 January 2018. [Article 42]

◙ According to the amendment, the VAT treatment of a single composite supply that does not include a principal component should be assessed based on the nature of the whole supply in all its components. [Article 46]

◙ For the purpose of input VAT recovery on supplies of financial services provided outside UAE, the conditions for a person to be considered as outside the UAE even where that person is present in the UAE are updated where the following two conditions should be met:

• • The presence is of short term in UAE of less than one month, and
  • The presence in UAE is not effectively connected with the supply.

◙ Previously any one of the conditions needed to be met. [Article 52]

◙ The exceptions list for input VAT entitlement on employee related expenses has been updated to include medical insurance provided to the employees and their dependents (spouse and 3 children below age of 18), taking into consideration the legal obligations under the applicable labor law. [Article 53]

◙ A taxable person can now request the FTA’s approval for the use of a fixed apportionment recovery rate, based on the apportionment recovery rate of the previous tax year. Also, new requirements have been added to adjust the annual adjustment threshold of AED 250,000 proportionately with the tax year period where it is less than 12 months. [Article 55]

◙ It is clarified by the FTA that the first year for an internally developed Capital Asset shall be the year in which that asset is started to be used. [Article 58]

◙ The FTA has updated a few points under Article 59 on Tax invoices:

• • Simplified tax invoices cannot be issued for supplies taxable under Reverse Charge mechanism. o Simplified tax invoices should be issued on the date of supply.
  • The Registrant shall issue a summary of the Tax Invoice and deliver it to the Recipient of Goods or Recipient of Services within 14 (fourteen) days of the end of the calendar month within which the date of supply occurs for such supplies.
  • Administrative exception is available for both issuance and delivery of Tax invoice. [Article 59]

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