The implementation of new VAT laws in Dubai in 2023 is expected to be a significant milestone, following the successful completion of a five-year period of VAT implementation in the city. These laws have been developed based on the challenges and experiences of the business community in Dubai, and are intended to provide a clearer and more streamlined framework for VAT. The new UAE VAT Laws are designed to simplify certain provisions and reduce confusion regarding various interpretations. The government of the UAE is committed to supporting the business sector by making VAT and taxation procedures as straightforward as possible.
VAT Registration in UAE
Under the UAE VAT Law, it is mandatory for businesses to register for VAT. The registration requirement is based on the income levels of the company. To register for VAT and obtain a Tax Registration Number, businesses must complete an online VAT registration form and provide certain required documents. Investors should be prepared to provide these documents as part of the registration process.
New UAE VAT Updates 2023
The business sector in Dubai will be affected by recent changes to VAT in the United Arab Emirates. The Ministry of Finance has announced modifications to certain VAT provisions, including changes to key provisions related to Value Added Tax (VAT).
The main changes to the UAE VAT Law – effective from 1 January 2023 – are summarized below:
Article (1) – Definitions
To align with the definitions provided in the tax procedures law, the new Decree-law introduced new definitions for Relevant Charitable Activity, Pure Hydrocarbons, Tax Evasion, Tax Audit, Tax Assessment, and Voluntary Disclosure. Minor additions and clarifications have been made to the current definitions, as well as some language changes.
Article (5) – Supply of Goods
The definition of the supply of goods is expanded to include the instance wherein more than two parties enter into a contract entailing the transfer of goods on a later date.
Article (7) – Supply in Special Cases
A new clause has been added to Article 7 that states the Executive Regulations may stipulate any other supplies (other than the supply of vouchers and the transfer of a business) that are explicitly considered outside the scope of VAT.
Article (15) – Registration Exceptions
Following the change, FTA permits current tax registrants (including those who are already registered) to request an exception from VAT registration if their supplies are completely zero-rated.
Article (21) – Cases of Tax Deregistration
Previously, the deregistration can only be initiated by the tax registrant themselves; in this amendment the FTA has the right to deregister any registered person when it poses a threat to the integrity of the tax system. It is also worthy to take note that the authority can still collect tax and penalties to any deregistered persons.
Article (26) – Date of Supply in Special Cases
The determination of the date of supply in the case of a contract involving periodic payments or consecutive invoices is specified in clause 1(d) as the date that marks the end of the one-year period following the date that the goods or services were provided.
Article (27) –Place of Supply of Goods
The amendment states that for the supply of goods involving export or import, the place of supply will be in the UAE if the supply is a continuous supply that falls under the date of supply rules specified in Article 26(1) of the VAT Law and the ownership of the goods is transferred in the UAE. This makes it clear that where the ownership of the goods is transferred in UAE, the VAT will still be applicable to the payments made when goods are physically kept outside UAE.
Article (30) – Place of Supply in Special Cases
- I) Article 30(8) regarding the place of supply in special cases, now states that the place of supply of transport-related services (even if provided separately from transportation services by different suppliers) will be the place where the transportation starts.
- II) Amendment to Article 30 (3) makes it clear that the special place of supply rule will be applicable only to services provided on goods.
Article (33)-Place of residence of a principal
Article 33 defines the place of residence of a principal to be the place of residence of the agent. Under the current VAT Law, it was stated that the place of residence of the agent shall be the place of residence of the principal.
Article (36) -Value of Supply for Related Parties
Article 36 concerning the specific anti-avoidance rule for the value of supply or import of goods and services between related parties will now override Article 37 (value of deemed supply). The amendment clarified that where a deemed supply occurs between related parties, the value of the supply will be based on the prevailing market value.
Article (45)-Supply of Goods and Services Subject to Zero Rate
The Amendment of VAT Law has extended the scope of clauses (4), (5), (6), (12), and (14) to include both the importation of goods and services, as well as the supply of goods and services that will be subject to zero-rated.
Article (48) – Reverse Charge
i) Article 48, Clause 3 has been revised such that the domestic reverse charge mechanism will only apply to Pure hydrocarbons, which means that it will only apply to hydrocarbons consisting solely of carbon and hydrogen elements.
ii) The procurement of any crude or refined oil, unprocessed or processed natural gas, or pure hydrocarbons for the purpose of use in the production or distribution of any form of energy will also trigger the application of the domestic reverse charge mechanism.
iii) Clause 8 has been added to clarify that the Cabinet may issue a decision specifying other goods and services that will be subject to the reverse charge mechanism and outlining the relevant conditions and provisions.
Article (55)- Recovery of input VAT
Clause 1(a) has been expanded to include the requirement to maintain invoices and import documentation in relation to imported goods and services.
Article (57) – Recovery of Tax by Government Entities and Charities
Government entities and charitable institutions may be able to recover the input VAT incurred in relation to the provision of sovereign and relevant charitable activities, respectively, subject to the normal input VAT recovery rules outlined in the Law.
Article (61)- Output VAT adjustments
The output VAT adjustment stipulated in Article 61(1) now covers a scenario 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 (e.g., cases where instead of a standard sale (5%), a zero rated (0%) was charged).
Article (62) – Mechanism for Output Tax Adjustment
According to clause 1 of Article 61 of the VAT Decree-Law, a tax credit note must be issued within 14 days of the date on which an adjustment to the output tax is required.
Article (65) – Conditions and Requirements for Issuing Tax Invoices
According to the Amended VAT Law, a taxable person must pay the VAT amount to the FTA as the tax due amount not only when they receive the VAT, but also when they issue a tax invoice.
Article (67) – Date of Issuance of Tax Invoice
The amended article also requires tax invoices to be issued within 14 days of the date of supply for continuous supply.
Introduction of New Article 79 bis – Statute of Limitations
A new article, Article 79 bis, has been added to the UAE VAT Law. This article is similar to the one recently added to the Excise Tax Decree-Law that relates to the statute of limitations.
i) According to this article, the Authority may not conduct a tax audit or issue a tax assessment to the taxable person after the expiration of five years from the end of the relevant tax period, except in cases covered under clauses 2, 3, 6, and 7 of this article.
ii)The Authority may conduct a tax audit or issue a tax assessment to the taxable person after five years from the end of the relevant tax period if they have been notified of the commencement of such procedures before the expiration of that five-year period, as long as the tax audit is completed or the tax assessment is issued within four years of the date of notification of the tax audit.
iii)The Cabinet may issue a decision to amend the period specified for the completion of a tax audit or the issuance of a tax assessment, as outlined in clauses 2 or 3 of this article, based on a suggestion by the Minister.
iv)No voluntary disclosure may be submitted after the expiration of 5 years from the end of the relevant Tax Period.
v)In the case of tax evasion, the Authority may conduct a tax audit or issue a tax assessment within 15 years from the end of the tax period in which the tax evasion occurred.
vi)In the case of failure to register for tax, the Authority may conduct a tax audit or issue a tax assessment within 15 years from the date on which the taxable person should have registered for tax.
The recent changes to UAE VAT Law have been designed to conform with globally recognized best practices in tax standards. The UAE government made these amendments in response to various challenges faced by businesses over the years, with the goal of filling any gaps in the tax system, establishing a strong VAT mechanism, and creating a business-friendly environment where investors can operate profitably. These updates to UAE VAT are expected to be beneficial to companies regardless of their size, type, nature, or industry.
It is a matter of question, on how a business can find errors/mistakes in already filed VAT Returns.
If a business wants to discover any errors or mistakes in previously filed VAT returns, it can request a VAT audit review. The process of VAT Audit in UAE, which is conducted by registered tax agents with the FTA, can help identify any errors, mistakes, or omissions in the business’s VAT returns.
Consult with the best VAT Consultants in Dubai, UAE
In light of the amendments to the UAE VAT Law regarding the statute of limitations, taxpayers should be prepared for increased tax audit activity from the FTA. To address the potential impact of these changes, it may be helpful to work with tax agents, providing VAT Services in UAE to develop a strong tax strategy.
VAT consultants in Dubai, like Elevate, can assist businesses in managing their tax affairs more efficiently, potentially reducing the risk of tax audits by the FTA. In case a tax audit occurs, we can also advise you on how to prepare for VAT audits in the UAE.
Elevate as an Auditing company with a professional team with excellent knowledge of VAT, providing VAT services like:
- VAT Registrations in UAE
- VAT Return filings.
- VAT Refunds.
- VAT Voluntary disclosure.
- VAT Reconsideration.
- Vat deregistration service
- VAT Audit
Liaison with FTA on their tax-related matters