UAE VAT Executive Regulation amendments

Key amendments

Given the number of amendments, this alert focuses on amendments which are likely to have the most significant or broadest impact, namely Articles 30, 31, 42, and 46.  We have listed the remaining amendments for your reference in the penultimate section of this alert (for further information on these areas please contact us).

Article 30 - Export of goods

The documentary conditions to apply the zero rate of VAT on the export of goods are less onerous. The exporter is now required to retain any of the following:

1. a customs declaration, and Commercial Evidence that proves the export,
2. a Shipping Certificate and Official Evidence that prove the export, or
3. a customs declaration that proves the suspension arrangement of customs duties, in case the goods are put into customs suspension.

Paragraph 4 is also amended and provides a definition of Official Evidence, Commercial Evidence and Shipping Certificate.

The amended article aligns the Executive Regulation with Article 14 of the Executive Regulations of the Federal Decree-Law No. 7 of 2017 on Excise Tax (exemption for the export of excise goods).

Article 31 - Export of services

An additional requirement has been added to zero rate export of services under Article 31(1) of the Executive Regulation:

    3) The Services are not treated as being performed in the State or in a Designated Zone under Clauses 3 to 8 of Article 30 and Article 31 of the Decree-Law.

Article 30 paragraph 3 to 8 and Article 31 of the Decree-Law state the special place of supply rules for services such as real estate related services, electronic services and telecommunication services. This amendment potentially narrows the scope for the zero rate of export, e.g. where these services have a place of supply in the UAE (due to use and enjoyment, location of the real estate, etc.) they would become standard rated.

Further, the anti-avoidance provision of Article 31(3)(b) is amended.

Article 42 - Tax treatment of financial services

Additional services are exempt from VAT:

• The management of investment funds
• Transferring ownership of Virtual Assets, including cryptocurrencies
• Converting Virtual Assets

Please note, the last two exemptions are treated as effective from 1 January 2018.

The management of investments funds

The management of investment funds, which means “services provided by the fund manager independently for a consideration, to funds licensed by a competent authority in the State, including but not limited to, management of the fund’s operations, management of investments for or on behalf of the fund, monitoring and improvement of the fund’s performance”.

Fund managers should analyze whether (and to what extent) their services qualify for the VAT exemption and the impact on their VAT recovery position (and therefore cost base). Funds purchasing services from fund managers should also analyze whether the fund management services procured qualify for the exemption, especially when these services are procured from outside the UAE.

Virtual Assets

Virtual Assets are defined as: Digital representation of value that can be digitally traded or converted and can be used for investment purposes, and does not include digital representations of fiat currencies or financial securities..

Businesses dealing with virtual assets should analyze the impact of the exemption on their (retrospective) VAT position, especially in respect to their input tax recovery. Voluntary disclosures may be required to correct historic returns. 

Article 46 - Tax on supplies of more than one component

Paragraph 1(b) is added to address a scenario in which there is a single composite supply without a principal component. The VAT treatment of this supply should be based on the nature of the supply as a whole.

Other amendments

• Article 1: includes additional definitions, most notably the FTA’s definition of “Virtual Assets” and “Notification”. The latter now expands to any persons and not limited to a concerned Person, their Tax Agent or Legal Representatives only. 
• Article 2: a supply of real estate is not limited to sale and tenancy contracts but also includes any forms of disposal causing the transfer of ownership from one person to another.
• Article 3: transfers of ownership or the right of use of government buildings and real estate between government entities are not considered a supply.
• Article 5: if the value of the supply of goods (not limited to samples or commercial gifts) to each recipient within a 12-month period does not exceed AED 500, then it is not a deemed supply. The output VAT threshold to not trigger a deemed supply for a government entity or charity is AED 250k in a 12-month period. 
• Article 8: a business may only register voluntarily if it satisfies to the FTA that it is carrying a business in the UAE or intends on making taxable supplies. This also includes supplies made outside the State which would have been taxable (or exempt) if made within it. 
• Article 14, 14(bis),15 and 16: specific amendments in relation to tax deregistration.
• Article 38: the definition of a “relevant charitable activity” has been removed.
• Article 53: input tax incurred for health insurance, including enhanced health insurance, provided to employees and their dependents (up to one spouse and three children) free of charge is recoverable.
• Article 55: taxpayers may apply to the FTA to approve the use of a specified recovery percentage to calculate the recoverable Input Tax in any Tax Period based on the recovery percentage of the preceding Tax year.r.
• Article 59(5): as an additional exception, a simplified tax invoice cannot be issued in case the reverse charge mechanism applies.
• Article 60: an agent who is a registrant can issue a credit note for goods and services on behalf of its principal, provided that the agent maintains records to identify the principal's name, address, and tax registration number (and vice-versa).

Next steps

Businesses need to carefully analyze the impact of the amendments on their VAT position. 

The breadth of the changes means all industry sectors should review the extent to which they are impacted.

In particular fund managers, funds and companies dealing with virtual assets should assess whether their services are within the scope of the VAT exemption and also analyze the impact of that on the input tax recovery.

Please get in touch if you have any questions and want to discuss how these amendments may impact your business.