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The Impact of VAT Law Amendments

January 20, 2023
Fortius Team
A financial officer holding a magnifying glass over the VAT portion on an invoice, UAE dirhams banknotes and coins are also seen.

The UAE Ministry of Finance announced on October 28 2022, the issuance of Federal Decree-Law No. 18 of 2022 (Amended Decree Law), which amends Federal Decree-Law No. 8 of 2017. (Decree-Law). On the same date, the Federal Tax Authority (FTA) published the amendments on its website. The amendments will go into effect on January 1, 2023.

The key modifications include but are not limited to:

  1. An extension of the general statute of limitations
  2. The inclusion of time limits for the issuance of tax invoices and tax credit notes
  3. Modifications to the applicability of domestic reverse-charge provisions
  4. Amendments to existing terminology
  5. The introduction of new terminology

An Overview of VAT and Its Amendments

VAT is a consumption tax imposed on domestic purchases and imports of goods and services. This helps the government to raise funds. The value-added tax is computed by adding the prices of all intermediate goods and services used in production and deducting any applicable discounts and refunds.

As one of the most prevalent forms of consumption tax in the world, VAT is imposed on the vast majority of purchased and sold goods and services. The United Arab Emirates implemented VAT on January 1, 2018. The Decree Law has never been amended before. Let's examine the amendment to the Decree Law in depth.

Specifics of the UAE VAT Law Amendment

Twenty-four articles were amended, and one article on the statute of limitations was added, representing significant changes to the UAE VAT Law. Several amendments are intended to provide clarification, while others indicate a change in tax status (s). Consider the modifications made to the Federal Decree Law:

Type of Change Statutory Amendment
Definitions Definitions under Article 1 of the Amended Decree Law

The below terms have been legally defined for the first time:

  • Relevant charitable activity
  • Pure Hydrocarbons
  • Tax evasion
  • Tax audit
  • Tax assessment
  • Voluntary Disclosure
  • Tax Procedures Law
Goods/ Services Outside the Ambit of VAT A new provision has been included in Article 7 wherein it is stated that the Executive Regulations may define any other supplies (other than the supply of vouchers or transfer of a business) considered outside the scope of VAT.
Goods Subject to Zero-Rate Article 45 (clauses 4, 5 and 6) of the Amended Decree Law now includes the "import" of the following supplies which may be zero-rated (subject to prescribed conditions):

  • Means of transport for passengers and goods
  • Aircraft or vessels designated for rescue and assistance by air or sea
  • Crude oil and natural gas
  • Health care services, and related goods and/or services
Recovery of Input VAT Two new clauses have been added to Article 55 regarding the recovery of input VAT which specifies the requirements for the taxable person to
recover VAT paid or declared on the import of goods or services

  • Article 55 of the Amended Decree Law now outlines the documents required to support the recovery of input tax (including pre-VAT registration input tax) on the importation of goods and/or services.
  • Article 57 of the Amended Decree Law now clarifies that the input tax paid by government entities, incurred for the purposes of sovereign activities and input tax paid by charities incurred for the purposes of charitable activities should be eligible for recovery.
Output VAT Adjustment The output VAT adjustment stipulated in Article 61(1) covers the 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.
Timeline to Issue a Tax Credit Note Article 62(2) on the mechanism for output VAT adjustment now specifies a condition that the taxable person must issue a tax credit note
within 14 days from the date
on which any of the instances provided in Article 61(1) occurs.
Payment of Tax Article 65(4) requires mandatory compliance for the taxable person to pay the VAT to the Federal Tax Authority (FTA) in the event such a person issues a tax invoice stating VAT on it or receives an amount as VAT.
Timeline to Issue a Tax Invoice Article 67(1) specifies the date of issuance of tax invoice under Article 26 (date of continuous supply) to be 14 days from the date of the supply.
Registration exception and deregistration Article 15 regarding the exception to register will apply to registered persons besides non-registered persons. This is applicable if their supplies are zero-rated, or if they no longer make supplies other than zero-rated ones.
Article 21 of the Decree Law concerning deregistration has been amended to empower the FTA to deregister a taxpayer
for reasons other than those mentioned in the Decree Law. The related "controls and conditions" are likely to be outlined in the amended Executive Regulations which are expected to be released soon.
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.
Applicability of domestic reverse charge Clause 3 of Article 48 specifies that the domestic reverse charge will apply to Pure Hydrocarbons

  • The term "hydrocarbons" under Article 48 of the Decree Law has been replaced with the term "Pure Hydrocarbons."
  • Furthermore, the term "Pure Hydrocarbons" has been defined to mean "Any kind of different pure combinations of a chemical equation made only of hydrogen and carbon (CXHY)."
  • As such, the domestic reverse charge provisions will apply to "Pure Hydrocarbons" that fall within the new definition as opposed to "Hydrocarbons" of any kind.
Place of Supply in Special Cases Article 30(8) regarding the place of supply in special cases, now states that the place of supply of transport-related services will be the place where the transportation starts.
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.
Place of supply provisions Article 27 of the Decree Law has been amended to state that the place of supply of goods that includes import or export, should be considered as in the UAE, where the transfer of title takes place in the UAE.
Value of Supply 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).
Introduction of New Article on Statute of Limitations The new article Article 79 (bis) on the statute of limitations covers additional cases:

  • The statute of limitation of 5 years will not apply to cases where the FTA has issued a notice to audit the taxable person, provided such an audit is completed within 4 years from the date of issuance of the notice.
  • In the case where the taxable person files a voluntary disclosure in the 5th year from the end of the relevant tax period, the statute of limitation will be extended by one year.
  • A voluntary disclosure cannot be submitted by the taxable person after the lapse of 5 years from the end of the relevant tax period.
  • The article also mentions that such extended periods can further be amended under a separate Cabinet Decision.

Implications - The Bottom Line

Companies should evaluate the Amended Decree Law to assess the effect of the legislative changes on their processes and their preparedness by January 1, 2023. In addition, the amendments regarding the extension of the statute of limitations encourage companies to revisit their historical tax and reporting positions.

It will also enable businesses to freely reveal any inconsistencies within the prescribed period of time prior to being notified of an audit or assessment. At this time leading VAT registration services such as Fortius can be ideal for businesses to navigate the amended statutes. With our expertise and experience, you can handle the new amendments with ease. Get in touch with us today!

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