We wish to inform you that the United Arab Emirates (UAE) Federal Tax Authority (FTA) has published notable amendments to the Federal VAT Decree-Law No. 8 of 2017. This is the first update to the UAE VAT Law ever since its introduction in 2017. The amendments will go into effect from January 1, 2023.

In this piece, we have outlined an overview of the key changes to the UAE VAT Law. We recommend taxpayers in the UAE to closely study all the amendments to the UAE VAT law. This will help determine if their current tax processes require changes to comply with the modified regulations.

Extension of audit timeline

• The most significant of the changes is an extension of the potential period for the FTA to conduct audits of submitted VAT returns and the restriction on the period in which taxpayers can submit Voluntary Disclosures (VDs) for prior VAT returns. According to the new article 79 bis, Statute of limitation of 5 years will not apply to cases where the FTA has issued a notice to audit the taxable person, provided such an audit is completed within 4 years from the date of issuance of the notice.
• In the case where the taxable person files a VD in the 5th year from the end of the relevant tax period, the statute of limitation will be extended by one year. VD cannot be filed by the taxable person after the lapse of five years from the end of the relevant tax period.

Domestic Reverse Charge Mechanism for Hydrocarbons

• Article 48 (3) has been amended to clarify that the domestic Reverse Charge Mechanism (RCM) applies to pure hydrocarbons, which are defined as any kind of different pure combinations of a chemical equation made only of hydrogen and carbon (CxHy).
• As per Article 48 (4), the domestic RCM will also apply to crude or refined oil, unprocessed or processed natural gas, or any Pure Hydrocarbons where the recipient of goods has provided a written declaration to the supplier that the acquisition of the goods is for the use for production or distribution of any kinds of energy.

Zero rate applicability for import of goods

• Article 45 on goods and services subject to the zero rate has been amended to also include the import of the means of passenger transport, rescue aircraft/vessels, crude oil and natural gas, import of related basic healthcare goods, and import of precious metals (if imported for investment purposes).

Record-keeping requirements for VAT recoverability

• Article 55 on the requirements for recovery of input tax has been amended to specify documents necessary to recover input tax on import of goods and services. All invoices for the imports must be kept just the way a valid tax invoice is needed for recovering input tax on local purchases.
• If these documents are not available, businesses will not be able to claim input tax and will be liable to pay output tax on behalf of non-resident suppliers under RCM. Taxpayers must therefore request their overseas suppliers to issue invoices at an earlier stage in order to recover input tax on imported goods.

Timelines for tax invoices and tax credit notes

• Article 67 (1) states the date of issuance of a tax invoice should be within 14 days from the date of supply. This implies tax credit notes are to be issued within 14 days of issuance of invoice as per Article 62 (2). Previously the legislation did not specify a fixed timeframe for issuing a tax credit note.

Recovery of tax by government entities and charities

• Article 57 has been amended stating government entities may fully recover input tax incurred for the purposes of carrying out their sovereign activities and that charities may recover input tax incurred for the purposes of carrying out their relevant charitable activities, subject to the general exceptions rule.

Tax registration and deregistration

• Registered persons who make taxable supplies are allowed to apply for an exception from VAT registration if all their supplies are zero-rated or if they no longer make any supplies other than zero-rated supplies.
• The FTA may forcibly deregister registered persons in specific cases if deemed necessary and also reserve the right to recover tax and penalties after deregistration too, if applicable.

VIEW THE OFFICIAL DOCUMENT RELEASED BY FTA: Amending some provisions of the value Added Tax law, which enters into force on January 1, 2023.

Clarify your queries

We hope you found the updates useful and will further share the link with other business entities and relevant departments. Please feel free to reach out to us in case of any clarifications on WhatsApp.