VAT in the UAE came into existence on 1 January 2018. Since then, the Decree-Law has seen changes until September 26, 2022, when His Highness Sheikh Mohamed bin Zayed Al Nahyan, the UAE President & Abu Dhabi Ruler, released the Federal Decree-Law No.18 of 2022, with amendments to some provisions of the Federal Decree-Law No. 8 of 2017 on value-added tax (VAT). The new amendments are expected to be effective from 1st January 2023.
- Amendment of VAT Decree Law
- Amendment of VAT Executive Regulations
- Amendment of Tax Procedure Law
- Launch of Emara Tax
The amended provisions at a glance:
- Supply of goods
- Other out-of-scope transactions
- VAT Registration exceptions (Article 15) and VAT Deregistration (Article 21)
- Special date of supply
- Place of Supply of Goods (continuous supply) & Place of Supply in Special cases (transport-related services)
- Place of residency (agent/principal)
- Value of supply and deemed supply for related parties (Article 36, 55 & 57))
- Supply/import of goods and services that are subject to zero rate (Article 45 of the Amended Decree Law)
- Applicability of Domestic Reverse charge (Article 48 of the Amended Decree Law)
- Recovery of recoverable input tax in the tax period (imports)
- Recovery of tax by government entities and charities
- Instances and conditions for output tax adjustments (additional case)
- Mechanism for output tax adjustment
- Conditions and requirements for issuing tax invoices (obligation to pay VAT)
- Time limit to issue a tax invoice and/or a tax credit note
- Definitions under article no. 1 of the amended Decree Law
- Introduction of new terms including Relevant charitable activity, Tax evasion, Tax audit, Tax assessment, VD & Tax Procedures Law
Besides the major amendments, a new article on the statute of limitation has been inserted to the UAE VAT Law. Businesses are highly recommended to seek advice from tax consultants in Dubai like Adam Global before making any decision depending on the new law. Let’s take a quick look at some of the alterations done to UAE VAT Law.
Significant Amendment of VAT Decree Law Effective from 1 January 2023
- FTA authorises existing tax registrants to request an exception from VAT registration if their supplies are completely zero-rated.
- The amended VAT Decree Law now permits the taxable person to recover VAT paid or declared on the import of goods/services incurred by the taxable person before registration (on meeting specific criteria).
- It is mandatory to issue a Tax Credit Note within a period of 14 days from occurrence of adjustment event.
- The tax invoice issuance date under Article 26 (date of continuous supply) will be 14 days from the date of the supply.
- The place of residence of a principal is redefined as that of the agent.
- The FTA is sanctioned to forcibly deregister registered persons in specific cases, where needed.
- One of the most remarkable changes among these amendments is the insertion of a new article amending the provision of the Statute of Limitation.
- Time limit to issue a tax invoice and/or a tax credit note of 14 days from the date of supply (Article 67 of the Decree Law) has been extended to supplies that include periodic payments or consecutive invoices. Previously, there was no such time limit for the issuance of a tax invoice under these circumstances.
- Article 62 of the Amended Decree Law now introduces a time limit of 14 days for the issuance of a valid tax credit note. Previously, there was no such time limit for the issuance of a tax credit note.
- Pursuant to the amendments to Article 36 of the Decree Law, a deemed supply made to a related party should be equal to the market value (not total cost incurred), where the recipient is unable to recover input tax in full.
- Place of supply
Statute of Limitations Under the Amended UAE VAT Law
Under the existing law, as per Article 42 of the Federal Law on Tax Procedures (Federal Decree-Law No. 7 of 2017), the Federal Tax Authority (FTA) usually cannot conduct a tax audit after five years from the end of a tax period. A new article, Article 79 (bis), Statute of Limitations, has been added to the amended Decree Law which states that:
- FTA is not allowed to conduct a Tax Audit or issue a Tax Assessment to the Taxable Person after the expiry of five years term from the end of the relevant Tax Period. Taxable entities can reach out to VAT consultants in Dubai, UAE to understand this further.
- The new article on the statute of limitation (Article 79 bis) sets out to authorise FTA to issue Notice of VAT Audit before completion of 5 years from applicable tax period and conclude VAT Audit within 4 years from date of notice.
- The FTA is allowed an additional one year to perform an audit if a voluntary disclosure (VD) is filed by the taxpayer during (not after) the fifth year from the end of the relevant tax period.
The amendment of Article 79 bis raises particular concern for the registrants who have not yet claimed VAT refund within a five-year period. The afore-mentioned changes clarify that tax authority would not be empowered to audit the periods after five years, which is an inseparable part of the VAT refund process.
Note: The UAE Cabinet has discretionary powers to further amend the statute of limitation periods noted above.
Major Amendments to VAT Executive Regulations Law
- The obligation for independent directors to apply for VAT registration and charge VAT on their remunerations has been removed under the amended VAT Executive Regulations
- The Taxable Person whose place of establishment is in UAE must maintain records of the transaction to prove the respective Emirate
- In case value of the taxable supplies via electronic commerce crosses the threshold of AED 100,000,000, during the calendar year, the taxable person must keep transaction records to prove the Emirate where goods are delivered
More amendments to the UAE VAT executive regulations are expected soon.
Key Amendments to Tax Procedure Law Effective from 1st April 2023
- As power the amended Tax Procedure Law FTA must notify at least ten days before the audit commences. Previously, the timeframe was five days.
- The amount of any Administrative Penalty shall not exceed twice (earlier 3 times) the amount of Tax in respect of which the Administrative Penalties Assessment was issued.
- The amended Tax Procedure Law withdraws the minimum value of administrative penalties that can be imposed of AED 500.
- Any Person who deliberately does not pay off the due Administrative Penalty shall be subject to a prison sentence and a monetary penalty not less than the amount of the Administrative Penalty and not exceeding three (3) times of it, or either of the two, unless a decision is issued waiving thereof.
- Under the amended decree. a Person may request the Authority to review a Tax Assessment or part thereof and any concerning Administrative Penalties within 40 days
- If the Taxpayer discovers an error or omission in the Tax Return submitted to the Authority, where there is no difference in the amount of Due Tax, the Taxpayer must correct such return by submitting a Voluntary Disclosure.
Lauch of EmaraTax Portal (Live already)
- The Federal Tax Authority has introduced the EmaraTax platform on 5th December 2022 to provide a better experience for taxpayers managing their tax obligations. Users are required to login to EmaraTax to prepare and submit their VAT and Excise Tax returns.
- EmaraTax contains some outstanding enhancements to the way payments need to be made. The transition will significantly enhance the way taxpayers pay their taxes and obtain refunds
- FTA may launch additional services and features including Emara Tax Application for mobile phone from next year
- The new digital platform aligns with the UAE Digital Government Strategy 2025 to leverage emerging technologies and establish a solid digital infrastructure
Know the implications of the amended VAT Law from Expert
Taxpayers should be aware of increased tax audit activity from the FTA in the wake of amendments to UAE VAT Law with respect to the Statute of Limitations. It is advisable to consult with one of the best tax advisors in Dubai, UAE to plan a solid tax strategy to deal with the impact of the new change. Corporate service providers and VAT specialists in Dubai such as Adam Global can help you get you ducks in a row so that you can steer clear of FTA’s tax audits. Reach out to one of our most experienced VAT consultants in Dubai to understand how the amendments to the UAE VAT Decree-Law can affect your tax strategies and plans. Click here to get a free consultation with Adam Global Dubai VAT experts.