Value Added Tax (VAT) is a consumption tax imposed at each stage of the supply chain on goods sold and services rendered in the United Arab Emirates (UAE). Implemented in 2018, at a standard rate of 5%, VAT applies to most goods and services, with certain exemptions for essential sectors such as healthcare, education, and specific financial transactions. The introduction of VAT aims to generate revenue to support government expenditures on public services and infrastructure development.
Comparison of UAE VAT Law: Previous vs. Updated Regulations
| Aspect | Old VAT Law (2017) | VAT Law (2024) |
| Definition Updates | There were no terms of virtual & digital assets, | Now the definition of “Virtual Assets” is added that is ascribed to value capable of being traded or converted for investment purposes. “Virtual Assets” are identified as tradeable “Digital” representations excluding Fiat currencies. |
| Supply of Goods | Limited taxable Energy types and compulsory ownership transfer rules were vague. | Wide Taxable energy sources that cover biogas and ownership transfers as compulsory taxable transactions with clarity in law. |
| Supply of Services | Functions of boards of directors could be termed as services rendered for consideration. | Excludes functions of natural persons having seats on the boards of government and private entities from value added tax responsibilities. |
| Composite and Multiple Supplies | Distinction between single composite supplies and multiple supplies was unclear. | Incidental and principal supplies are now clearly defined. Such supplies are treated as a single taxable supply when they are provided together. |
| Deemed Supply Thresholds | There were no associated value thresholds for deemed supply. | Sets a threshold amount of 500 AED per recipient and 2000 AED per supplier within 12 months for supply deemed to be made. |
| Mandatory Registration | There were certain limits to registration, yet they were vague. | Retention of the 375,000 AED registration threshold, but deadlines and compliance measures have been revised. |
| Tax Deregistration | The integrity measures of deregistration received minimal focus. | Develops strategies for maintaining the integrity of tax administered to businesses that choose to deregister. |
| Zero-Rating of Exports | Providing supporting documents for zero-rating exports is not straight forward. | For exports that are claimed zero-rated, there should be proof for customs suspension as well as comprehensive supporting documents. |
| International Transportation | There is insufficient information about VAT on passenger transport and on the transport of goods. | There is some information on qualifying transport services for zero-rating; however, there is a need to ensure uniformity in the practice. |
| Education Services | Criteria for Zero-rating supplies to educational institutions. | Expand the categories of eligible institutions that should benefit from zero-rated VAT supplies. |
| Healthcare Services | There was no clear distinction made for cosmetic procedures. | Tax non-income generating aesthetic procedures as distinct from medical interventions and separate surgery from other treatment. |
Some amendments in Latest VAT law UAE
This summary highlights the most important amendments and their potential impact on those conducting business in the UAE.
- Real Estate Deals Achieve Broader Boundaries: -The phrase “supply of goods” has been redefined to include the entire scope of real estate activities other than conventional sales and leases. Now, every disposal resulting in a transfer of ownership, regardless of whether it involves a sale or tenancy agreement, is considered as a supply of goods. This expansion is clear: all transfers of ownership in real estate are liable to VAT, thus clarifying and alleviating the issues concerning immigration of tax avoidance via unconventional attempts for transferring possession of property, as well as aiding in the solving of convoluted property triangulations.
- Exemption from VAT Relating to Transactions of Managed State Entities: -A new provision excludes a certain type of transaction carried out between governmental bodies from VAT. Starting from January 1, 2023, the conveyances and creations of rights to government-owned buildings and other real estate among government organs is not treated as a supply of goods for taxation purposes. The scope of the exemption aims to enhance the speed and efficiency of inter-governmental processes and lessen the administrative cost of collaboration in the public sector. Even, relieve the public sector of the burden caused by having to deal with VAT.
- Output Tax Requirements on Certain Deemed Supplies: -The amendments have a new provision that sets a limit on reporting output tax for deemed supplies. Certain Government and non-profit bodies shall not pay VAT on deemed supplies for a 12 months period up to AED 250,000. The amount above this threshold shall be VAT taxable. This exemption eases the compliance ailments EU does with charity and governmental bodies, enabling them to allocate resources toward their primary goals while being accountable to tax authorities.
| Customs declarations and any commercial documents supporting the export. | Shipping certificates and any official documents that support the export. | Customs declarations showing that the goods are under customs suspension regime. |
- Exporting Certain Transport Services without Charge: The scope of services qualifying for zero rating has been expanded to include certain modes of transportation. Removing goods within the member state is restricted to only goods which are transported as part of an international service by the same supplier Identify purported abuses of these rules without unduly restricting trade in goods and services “within” the state. This ensures the consistency of treatment for VAT and avoids further abuse of the zero rating for domestic transport services.
- Virtual Assets inclusion in Exempted Financial Services: The virtual assets financial activities such as the transfer of ownership, management and conversion like cryptocurrencies, are now in the ambit of VAT exempted financial services. Transfers and conversion of virtual assets are exempt from VAT as of January 1 2018. This amendment is in line with the UAE’s efforts to foster innovation in the digital economy and implement emerging financial technologies within a clear tax policy.
Read more: Vat on digital services in UAE
- Fixed Rate Apportionment for VAT Recovery (Article 55): Businesses may calculate their VAT recovery at a fixed tax year rate through past figures from the preceding financial year. To measure the annual threshold correctly the AED 250,000 amount must be spread proportionally based on the number of months in the financial period. The adjustment strengthens VAT recovery procedures by offering improved flexibility together with enhanced consistency.
- New Deadlines for Tax Invoice Issuance (Article 59): The new regulations mandate simplified tax invoices should be sent when supplies occur yet summary invoices need to be provided after a 14-day period from monthly closure. The quick execution of invoicing regulations together with business billing process optimization are both benefits of this system.
Conclusion
Businesses are advised to seek the expert services of premier Tax Consultants in UAE such as Corporate Tax UAE to seamlessly determine taxability and ensure compliance with VAT regulations.
Shayan Khan is an experienced Corporate Tax Consultant with over 4 years of expertise. He’s skilled in negotiating and investigating taxes with government bodies like the Federal Tax Authority. Shayan is really good at reviewing and drafting tax papers and offers strategic advice on complex tax matters. Clients trust his guidance in navigating tax procedures and minimizing liabilities.
