As part of its ongoing efforts to clarify and improve the VAT framework, the United Arab Emirates (UAE) Cabinet issued Decision No. 100 of 2024 dated 6 September 2024 amending the provisions of UAE VAT Executive Regulations.
Whilst there have been earlier updates to the Regulations, it's the first time that we're seeing an update at this magnitude. In total, 35 changes have been made covering 34 articles. In this alert, we summarize the main changes, which will be effective 15 from November 2024:
Crypto assets
The new regulations introduce a broad exemption for (the trading of) crypto assets (defined as digital representations of value that can be traded digitally and used for investment purposes, excluding fiat currencies or securities) and would appear to cover non-fungible tokens (NFTs) and other digital assets (e.g. cryptocurrencies). This update is welcomed as it the first time since the inception of the VAT Law that the regulations explicitly cover the VAT implications on this industry. Interestingly, companies operating in this industry will have to consider retrospective effect, as the updated regulations explicitly mention that these rules will be effective on supplies from 1 January 2018.
Businesses trading in crypto assets and currencies have to consider if they have accounted for VAT since 1 January 2018 and take appropriate action. Additionally, whilst the broad exemption is positive news from the perspective of not having to charge VAT on sales of these assets, businesses will now also need to consider their right to recover input tax, as we would expect that a majority of the VAT incurred on expenses to be non-recoverable, which would then become a cost of doing business.
Investment fund management
The updated regulations also introduce a new VAT- exemption for investment fund management services. These are defined as services provided by a fund manager independently for a fee for funds licensed by a competent authority in the UAE, including but not limited to, managing the operations of the fund, managing investments for the benefit of the fund or on its behalf, and monitoring and improving the performance of the fund.
This is a major change in policy, as – to date – such services were considered taxable supplies in the UAE and thus will warrant an extensive review of current operations.
Funds & Fund managers are advised to re-evaluate their operations, specifically as under the new rules, a potential obligation to de-register for VAT could even arise for domestic funds and fund managers. Cross over to the new rules will also be a point of consideration and tax point rules will need to be carefully considered. Simultaneously, we would recommend the structure is analysed holistically, as there can be areas of (tax) optimisation given the new rules.
Input tax recovery
Employee benefits - businesses can now recover tax on medical insurance provided to employees and their spouse (limited to 1) and children (limited to three - under the age of 18).
A major relief for businesses, however, they are advised to ensure they satisfy the formal requirements (valid invoices and actual or intended payment within the timeframes).
Partial exemption recovery
Fixed rate recovery – No changes have been introduced to the standard method of apportionment. However, the updated regulations now introduce the option to apply for a fixed apportionment recovery rate based on the previous year, subject to approval by the FTA.
Again, this is a major change in policy and can in many instances lead to a reduction of the compliance burden on businesses, as the standard method for apportionment, including the requirement to benchmark against actual use can be considered cumbersome.
Actual Use – The yearly 'actual use' adjustment limit of AED 250,000 has been clarified in cases where the tax year is less than 12 months and will need to be proportionally adjusted.
This represents a major compliance relief for businesses subject to partial recovery that would otherwise be required to carry out calculations every tax period, along with a yearly adjustment as well as an alternate actual use-based adjustment. That said, businesses should be careful in weighing the options between ease of compliance and recovery optimization.
Government & charity
The deeming rules have been updated to offer a welcomed relief in the form of an AED 250,000 threshold for supplies made between charities and government entities across a 12-month period.
Tax invoices and credit notes
Tax invoice issuance
Simplified tax invoices (B2C or under AED 10,000) - businesses must issue on the date of the supply. Businesses must take extra precautions and ensure their systems are geared up as this update will often require them to issue simplified invoices on the same day.
Summary tax invoices (multiple supplies to the same recipient in the same tax period) - businesses will have until the 14th of the month following the month in which the date of supply was made. Contrary to the above, the timeframe is extended beyond the standard 14-day allowance from the date of supply.
Credit notes
Multiple credit notes - The updates also cover instances in which more than one credit note is issued relating to the same tax invoice. In these cases, they clarify that the adjusted value shown is against the previous tax credit note.
Issued via Agents - The updates introduce record keeping requirements for both Agents and Principal suppliers that require both parties to maintain records that clearly identify the name, address and registration number of the other party.
Evidence of Exports of Goods
There are new rules covering proof of export in order to apply the zero-rating but we would categorise them as clarificatory in nature. They outline clearly, through definitions, the types of documents that are considered acceptable evidence. This will help guide exporters with their compliance.
Commercial evidence: documents issued by shipping or air transport companies or agents proving the transportation and departure of goods outside the UAE. This includes airway bills, air cargo manifests, landing bills, sea cargo manifests, land transport bills or land cargo manifests
Official evidence: export certificates issued by the Customs authority, or clearance certificates issued by the competent authorities in the UAE or by the competent authorities in the destination country indicating that the goods have entered.
Shipping certificates: certificates issued by shipping or air transport companies or agents equivalent to commercial evidence if not available.
Exports of Services
The new rules add an additional condition for services to qualify for zero rating. Under the new rules, services that fall under any of the special place of supply rules would be disqualified. These special place of supply rules cover goods, means of transport, catering, entertainment, sport, culture, education, transportation and related services and real estate related services. Since these services are consumed in the UAE it has always been logical that they would not be capable of zero-rating as an export and the new rules clarify this.
Composite supplies
The new rules offer clarity as to the tax treatment in cases where there is no main component in a composite supply. In these cases, tax will apply based on the nature of the supply as a whole.
Residential buildings - exclusions
The new rules have been updated to extend and broaden the exclusions to specifically cover 'hotel apartments', as well as including serviced apartments or similar. Considering the significant development of the local real estate market, businesses engaged in real estate or real estate related services are advised to consider whether the nature of their services fall under this update, and if so, to review their commercial arrangements in the context of whether they have the right commercially to charge VAT in addition to the contractual price already agreed. Businesses anticipating providing services that fall under this update in the near future are highly encouraged to consider their pricing in light of VAT.
Other changes
There are a small selection of other changes that may only impact certain business including most notably changes to the treatment of certain real estate supplies between government entities, as well as some welcome clarification on the treatment of costs in the case of supplies subject to the profit margin scheme.
More information
The amendments cover a wide range of provisions, the underlying themes of which are to cater for recent global developments in assets and currencies, align procedures to international best practice, improve compliance and transparency and support taxpayers.
Originally published 4 October 2024
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
