On 26 September 2022, the President of the UAE, H.H. Sheikh Mohamed Bin Zayed Al Nahyan issued the Federal Decree-Law No.18 2022 amending some provisions of the Federal Decree-Law No. 8 2017 on Value Added Tax (the VAT Law). The amendments will take effect from 1st January 2023. This is the first update to the VAT law since its introduction in 2017. Business can obtain the services of VAT consultants in Dubai to understand the implications of the amended VAT Law. Tax agents in Dubai can also advise you to adopt appropriate tax strategies and plans.
A total of 24 articles were changed and one article on the statute of limitations for the FTA to conduct tax audits was added to the VAT Law.
Summary of the Key Changes:
Extension of audit timeline – Article 79 on Statute of Limitations
Introduction of article 79(bis) on statute of limitations is one of the major changes to the UAE VAT Law. This article is similar to the one recently introduced to the Excise Tax Law.
The new article covers the following:
According to the new article, where the FTA provides notice of an audit within five years of the end of the relevant tax period, the FTA may conduct an audit within four years from the date of notification. This means FTA in total has a period of 9 years from the end of the tax period to conduct a tax audit.
In addition, the statute of limitations will be extended by one year in the event that the audit relates to a Voluntary Disclosure (VD) submitted by the taxpayer in the fifth year from the end of the tax period.
Further, a taxable person cannot submit a VD after five years have passed from the end of the relevant tax period.
Changes to Definitions
The new VAT law has introduced some new definitions including for the following Relevant Charitable Activity, Pure Hydrocarbons, Tax Evasion, Tax Audit, Tax Assessment and Voluntary Disclosure.
Supplies outside the scope of VAT
A new clause added to Article 7 states that the executive regulations may stipulate any other supplies (other than the supply of vouchers and the transfers of business) that are explicitly considered outside the scope of VAT.
Exception from VAT Registration
Article 15 on registration exceptions will now be applicable to registered persons in addition to non-registered persons. They may apply to the authority to allow the exception if the business makes only zero rated supplies.
Additions to Zero rated supplies
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, and concerned goods and services relating to the supply of preventive and basic healthcare services.
Domestic Reverse Charge Mechanism
Article 48(3) specifies that the domestic reverse charge will apply to Pure Hydrocarbons(as defined in the new decree law as “any kind of different pure combinations of a chemical equation made only of hydrogen and carbon”.
Recovery of input VAT
Article 55 of the VAT Law now contains two new clauses regarding the recovery of input tax. It specifies the requirements for the taxable person to recover VAT paid or declared on the import of goods or services.
Recovery of input VAT by Government entities and charities
Article 57 of the law now explicitly allows government entities to recover input VAT incurred for the provision of sovereign activities. Similarly, charitable organizations can recover input VAT that is incurred for the provision of relevant charitable activities.
Date of supply in special cases
Article 26(1) determining the date of supply in special cases includes the date on which one year has passed from the date on which the goods or services are provided, as one of the events to determine the date of supply.
Output VAT Adjustment
Article 61(1) now covers scenarios where the taxable person applies an incorrect tax treatment. In such cases, the taxable person should now issue a tax credit note to adjust the output tax.
Timeline to issue Tax Credit Note
A Tax Credit Note should be issued within 14 days from the date on which any of the instances mentioned in Article 61(1) occurs.
Timeline to issue Tax Invoice
Article 67(1) when read in conjunction with Article 26, states the date of issuance of a tax invoice relating to the date of continuous supply should be within 14 days from the date of supply. Consult Tax Consultants in Dubai to ensure VAT compliant Tax invoices.
Record keeping requirements for VAT recoverability
Article 55 now specifies the requirement to recover input tax on import of goods & services which requires the maintenance of import invoices ((similar to how a valid tax invoice is required to recover input tax on local purchases).In actual practice, this has not previously been strictly followed and therefore it will be important to ensure that the foreign supplier’s invoice is received and booked prior to recovering VAT on import. Goods in particular should carefully be monitored as the invoice may be received after the actual import of goods. This enhances the need for a thorough reconciliation of the values automatically populated in Box 6 of the VAT return for import VAT incurred on imported goods, and for strong governance around this aspect of compliance.
Requesting overseas suppliers to issue invoices at an early stage is therefore suggested in order to be entitled to recover the input tax on imports.
Taxable persons are required to review their financial records on the basis of the amended provisions thus ensuring the business is compliant with the amended VAT Law effective from 1st January, 2023. Connect with the best VAT consultants in UAE, who can help entrepreneurs to understand the implications of the amended law.
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