November 14, 2022Dated:  | |

VALUE ADDED TAX (VAT) was introduced in the UAE with effect from 01 January 2018. Since then, it’s the first time FTA has brought a major amendment in the Federal Decree-Law No.8 of 2017 Issued on 23 Aug 2017. On 26 September 2022, His Highness Sheikh Khalifa Bin Zayed Al Nahyan, President of the United Arab Emirates, issued the Federal Decree-Law No. 18 of 2022 (the amendment) which will be applicable from 01 January 2023.

As per the latest amendment, new provisions were added and more clarification was provided to the existing VAT laws. We will discuss the key amendment in the VAT laws as per the Federal Decree-Law No. 18 of 2022 below.

  1. The FTA has introduced new definitions for Pure Hydrocarbons, Tax Evasion Relevant Charitable Activity, Tax Audit, Tax Assessment, and Voluntary Disclosure.
  2. As per Article (15), the authority may accept a Registrants request for VAT Exception if he is subject to only Zero Rated Supplies.
  3. Pure Hydrocarbons which are being used for the production or distribution of any form of energy are subject to the Domestic Reverse Charge Mechanism in the new amendment rather than any Hydrocarbons as specified in the existing VAT laws as per Article (48)
  4. The businesses conducting import should retain the invoices and other important documents including the bill of entry As per Article 55 to claim input tax on the imports.
  5. Clause (4) of Article (65) conveys that if a Tax Invoice is issued or if any person receives any tax amount, it will be considered as due tax and the such amount should be paid to the authority when it’s due.
  6. Article (45) Goods and Services subject to Zero Rated Supplies has been added with additional goods/services, which are the import of means of transportation, import of goods related to the means of transportation, and import of deliverance airplanes and vessels.
  7. The Place of Residence of the Principal shall be considered as the place of supply of the Agent under Article (33).
  8. The FTA has the right to deregister a registered person under Article (21) of the new amendment.
  9. If the output tax was charged by the registered person in error or if the wrong tax treatment was adopted he shall adjust the output tax by issuing a tax credit note as stipulated in Article (61). Also, a tax credit note should be issued within 14 days from the date of occurrence of such an event.
  10. As per Article (36), in addition to Article (34) & (35), Article (37) – The value of Deemed Supply between related parties will be subject to VAT at the market value.
  11. To determine the date of supply on continuous supplies(in special cases), along with other conditions the FTA has included the date on which one year has passed from the date on which the goods or services are provided, as one of the conditions.
  12. Govt. entities can recover full input tax if they have incurred the expenses for the provision of sovereign activities of government entities. Charities will also be able to claim input tax incurred for the provision of relevant charitable activities subject to the general exceptions rules.
  13. Article (7) was amended with an additional clause that states that the Executive Regulations may include other supplies which may be considered outside the scope of UAE VAT.

The Federal Tax Authority has also introduced a new article – Article 79 (bis) – Statute of Limitation in the Federal Decree-Law No. 18 of 2022 and it specifies when the FTA will conduct the audit or issue a tax assessment. This article mainly covers the below details:

The FTA may not conduct a Tax Audit or issue a Tax Assessment to Taxable Persons after the expiration of 5 years from the end of the relevant Tax Period except for the following:

  • A Tax Audit or a Tax Assessment may be conducted by the Authority after five years from the end of the relevant Tax Period if the Taxable Person has been notified of its commencement before the expiration of the five years, as long as the Tax Audit is completed or the Tax Assessment is issued within four years of the date of notification.
  • If Voluntary Disclosure is submitted at the fifth year from the end of the tax period, The Authority may conduct a Tax Audit or issue a Tax Assessment after the expiration of 5 years from the end of the relevant Tax Period handed that one year from the submission date of the Voluntary Disclosure the inspection and Tax Assessment is completed.
  • 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 in which the Tax Evasion occurred
  • If a Taxable Person fails to register for Tax, the Authority may conduct a Tax Audit or issue a Tax Assessment within 15 years of the date of failure.

Voluntary Disclosures cannot be submitted by the taxable persons after 5 years from the end of the relevant tax period

Additionally, the article mentions that such extended periods can be amended by a separate Cabinet Decision.

A total of 26 Amendments were made to the existing Federal Decree-Law. It is to be kept in mind that all taxable persons are required to review the changes made in the Federal VAT decree Law and ensure to comply with the same effective from 01 January 2023.

If you would like to discuss and know how these changes will affect your business, feel free to contact us.