The UAE Cabinet (Cabinet) issued Federal Decree-Law No. 18 of 2022 on 26 September 2022, which amends some of the provisions of Federal Law No. 8 of 2017 on Value Added Tax (VAT Law).
The amendments are effective from 1 January 2023.
KEY UPDATES
It is noteworthy that the VAT Law is amended to revise various Articles. Some of these will have a substantial impact on the current VAT positions adopted by Businesses. Among these are the introduction of new Article on the statute of limitation, the time limit for issuance of a tax credit note, the time limit for issuance of an invoice for continuous supplies, the definition of hydrocarbons, valuation of deemed supply in case of related parties, etc.
Whereas certain amendments are immaterial to many businesses as they relate to changes in wording, incorporating all the related provisions in one place., etc., which will not have a material impact on the VAT positions adopted until now but are inserted to bring more clarity.
We have summarized below some key amendments and their relevance that taxpayers must know:
| Article Number |
Relevant Update |
Rethink Comments |
| 15 – Registration Exceptions |
In addition to the non-registrants, the VAT registrants that provide only zero-rated supplies can also apply for an exception from VAT registration. |
The existing VAT law permits to apply for an exception from registration only when submitting the VAT registration application.
The amendment brings in scope for the eligible registrations to convert their registration to an exception from registration. This will call for a few minor changes to the current amendment application.
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| 21 – Cases of Tax Deregistration |
The Cabinet grants a right to the FTA to de-register a taxable person if the continuity of such a taxable person negatively impacts the tax system. It is also clarified that the FTA can claim tax and penalty dues even if the taxpayer is de-registered. |
This amendment is made to empower the FTA both for de-registering a person early and to collect penalties even after the de-registration.
Without prejudice to the Statute of Limitations (see below), the FTA can now claim the tax or penalties from de-registered taxpayers. In order to prevent an unexpected bill from the FTA, taxpayers must now carefully assess the liabilities and settle them at the time of de-registration.
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| 30 – Place of Supply in Special Cases |
The special place of supply for transportation services is now extended to transport-related services. |
Currently, the place of supply for transport-related services is the same as the place of supply of the transportation service to which they relate. So, technically, the place of supply for transport-related services is where the transportation starts.
This amendment clarifies where the transport-related services are provided on a standalone basis, i.e., by a separate supplier than the transportation service provider, then also the place of supply shall be where the transportation starts.
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| 36 – Value of Deemed Supply |
The value of deemed supply between the related parties should also be determined as per the market value. |
The amendment seems to be introduced in light of the upcoming Corporate Tax in the UAE and the transfer pricing regulations. |
| 45 – Goods and services subject to Zero Rate |
The import of the means of transport (air, water, and land), import of goods related to the means of transport, import of rescue aircraft and vessels, and import of crude oil is added to the list of goods subject to VAT at 0%. |
This amendment should ease taxpayers importing goods as they now can import such goods at 0%, which was earlier at 5%, specifically those who cannot fully recover the input VAT. |
| 55 – Recovery of Recoverable Input Tax in the Tax Period |
Two new clauses that emphasize that the input VAT on import transactions shall be recovered only where the taxpayer retains the supplier invoice (for goods and services) and import documentation (for goods) are inserted. |
The new clauses are in line with the documentation requirement for reverse charge transactions per the Executive Regulations on the VAT law. |
| 57 – Recovery of Tax by Government Entities and Charities |
The Cabinet has clarified that Government Entities and Charities are entitled to recover the full amount of input tax on expenses incurred for sovereign and relevant charitable activities. |
This amended Article provides more clarity to Government Entities and Charities on the recovery of input tax. |
| 61- Instances and Conditions for Output Tax Adjustments |
The taxable person can now adjust the output tax after the date of supply in case of incorrect tax treatment. |
The earlier adjustment was allowed where the tax was charged erroneously. The FTA has broadened the situation where an adjustment can be made to the output tax for incorrect tax treatment as well. |
| 62 – Mechanism for Output Tax Adjustment |
The Cabinet has now mandated to issue a tax credit note within 14 days from the date of the occurrence of the event. |
This amendment is aligned with the timeline for issuing a tax invoice. |
| 65 – Conditions and Requirements for Issuing Tax Invoices |
Any person shall remit the VAT to the FTA not only for the invoice issued by him but also for the amount received as VAT. |
All registered as well as unregistered persons must now remit the amount collected as VAT to the FTA whether or not an invoice was issued. |
| 67 – Date of Issuance of Tax Invoice |
The amended VAT law states that similar to the one-off supplies, the tax invoice must be issued within 14 days from the date of the supply for continuous supplies. The Executive Regulations shall determine cases where the tax invoices shall be issued immediately. |
This would be an increased administrative burden for Businesses involved in making continuous supplies.
Such Businesses should ensure that timelines are adhered to avoid administrative penalties from the FTA.
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| New Article 79 (BIS) – Statute of Limitation |
This new Article stipulates the statute of limitation for the FTA to conduct the tax audit or tax assessment by the FTA.
Except in the following cases, the FTA cannot conduct a tax audit or issue a tax assessment after the expiry of 5 years from the end of the relevant tax period:
• If the notification of a tax audit or tax assessment is issued before the expiry of 5 years, the FTA must complete the audit/assessment within 4 years from the date of issuance of such notice.
• If the audit/assessment is regarding a Voluntary Disclosure (VD) submitted in the 5th year from the end of the tax period, the FTA must complete such audit/assessment within 1 year from the date of submission of a VD.
• For tax evasion cases or failure to register for VAT, the statute of limitation is extended up to 15 years.
A VD cannot be submitted after 5 years from the relevant tax period.
The Cabinet may amend the extended timeframes for the completion of the audit/assessment by the issuance of a separate Decision.
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Earlier, the statute of limitation of 5 years was not only for commencement but also for the completion of the audit/assessment.
This amendment has given an extra timeframe for the FTA to complete the audit/assessment, which can be challenging for Businesses.
The Statute of Limitation for the submissions made in 2018 starts from 2013, and the amendment allows FTA up to 4 extra years to perform the audit provided it issues notification for commencing the audit procedures in the 5th year.
It is clear from the above that taxpayers should anticipate FTA audit letters for submissions made in 2018 in the near future.
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HOW CAN WE HELP?
Rethink, as an entity, provides Tax advisory, optimization, registration, implementation, compliance, and training services in UAE, Bahrain, KSA, and the GCC.
Our team of senior qualified tax advisors, finance experts, and tax accountants are happy to provide practical help and advice to ensure timely and cost-effective Tax services.
Based on our local and international experience, we understand that VAT is a complex tax and will certainly suffer numerous changes in the upcoming years. Rethink’s VAT services are aimed to suit both basic and complex returns for SMEs and larger enterprises.
WHO ARE WE?
Re/think is a boutique accounting, audit, advisory, regulatory compliance, and tax advisory firm with offices in Dubai and Abu Dhabi (ADGM) focused on providing businesses of varying sizes with timely, proactive, and customized business solutions from start-up and early development to the latest stages of a business lifecycle.
AUTHORS
Keerthi Voodimudi
Director – Tax
Neha Kelkar
Tax Manager
