UAE: Amendments made to the VAT Executive Regulations

In detail

The UAE Cabinet issued a Cabinet Decision (No. 88 of 2021) on 28 September 2021 amending Clauses 5 to 10 of Article 51 of the Cabinet Decision No. 52 of 2017 - The Executive Regulations of the Federal Decree-Law No. 8 of 2017 on Value Added Tax. 

Clause (5) of Article 51 has been amended to include sub-clause b and c as below (the bold text is the additions made to the original Clause as amendments):

“Where a supply of goods is made within a designated zone to a person to be consumed by him or another person, then the place of supply shall be the state, except in any of the following cases:

The purpose was to incorporate the goods into, attach the goods to, or that the goods become part of or are used in the production of another good in the same designated zone and such good is not consumed.

The goods were delivered to a place outside the state, and the supplier retains supporting commercial or official evidence proving that, and customs evidence proving that the goods were removed from the designated zone.

The goods were moved from the designated zone to a place inside the state, and the supplier retains official evidence establishing that VAT had been applied on that import.”  

Clause (7) of Article 51 has been amended as below (The original text of the Clause is replaced by the bold text as amendments): 

As an exception to Clause 6 of this article, the place of supply of any services shall be outside the state, where shipping or delivery services are supplied directly in connection with goods that have a place of supply outside the state according to paragraphs (b) and (c) of Clause 5 of this article, and all the following conditions are met:

1. Shipping or delivery services are supplied by the same supplier of the goods;

2. The supplier of the goods is a non-resident, and not registered for tax;

3. These goods are sold via an electronic sales platform; an electronic sales platform means any type of online sales platform, including websites and electronic applications, which bring together third-party sellers and buyers, and through which goods may be sold and purchased with or without shipping or delivery services;

4. The person owning the electronic sales platform is not the supplier of the goods.

The original text of Clause (7), (8) and (9) of Article 51 become Clause (8), (9) and (10) of Article 51 as the result of the amendments.

The Federal Tax Authority (‘FTA’) has issued a Public Clarification (VATP027) - Goods Supplied in a Designated Zone, and Connected Shipping or Delivery Services on 30 October 2021. According to the Public Clarification, the new amendments aim to:

• Avoid potential double taxation on goods supplied from a designated zone to the UAE mainland; and

• provide registration relief to non-resident suppliers who also ship or deliver these goods. 

The Public Clarification also provides guidance on the conditions to be met for the application Article 51(5) and (7) for treating the supply of goods and supply of shipping or delivery services as out of scope of the UAE VAT respectively.   

The amendments are prospective and effective from 30 October 2021, supplies made before the effective date of the amendments shall still follow the VAT treatment based on the original Clauses of Article 51 of the Executive Regulations.

Taxpayers can retrieve the amended VAT Executive Regulations and Public Clarification (VATP027) from the official website of the FTA via the following links:

The amended VAT Executive Regulations
https://www.tax.gov.ae/-/media/Files/FTA/links/Legislation/VAT/Executive-Regulation-of-Federal-Decree-Law-No-8-of-2017---Publish-new-2.pdf

The Public Clarification
https://www.tax.gov.ae/-/media/Files/FTA/links/Public-Clarification/VATP027---Goods-and-services-supplied-in-a-DZ.pdf