The Federal Tax Authority (FTA) issued Public Clarification No. 40 to provide insights into the amendments introduced by Cabinet Decision No. 100 of 2024 to the VAT Executive Regulation under Federal Decree-Law No. (8) of 2017. These revisions constitute the most significant changes to the UAE's VAT regulations
Public Clarification No. 40 covers the following key topics:
- Supply comprising multiple components
- Profit margin scheme
- Zero-rating for the export of goods and services
Updated Procedures on Export Documentation
Changes to Article 30 of the Executive Regulation reduces the burden of proof put forward by businesses applying for the zero-rate on exported goods. Businesses exporting goods need only retain one of the following forms of documentation:
- A combination of customs declarations and other commercial evidence supporting the export.
- Shipping certificates along with some official evidence supporting the export.
- For goods under customs suspension (as per GCC Common Customs Law), customs declarations confirming the suspension status.
From November 15, 2024, the following new forms of official evidence will also be acceptable:
- Local customs authorities export certificates confirming the goods have left the UAE.
- Clearance certificates from UAE customs or any other competent authority.
- Certified documents from the destination country authorities confirming entry of the goods.
Such documents should be issued in Arabic or English, or with a certified translation, and should contain a stamp or seal. Exports made before 15 November 2024 still follow the previous customs declarations and exit certificate requirements.
VAT Exemptions on Financial Services
Article 42 changes the scope for application of tax to include financial service activities such as Islamic financial arrangements and newly classified financial services.
Islamic Financial Arrangements:
- The term "relevant laws" now linked with the treatment of VAT implies that there must be relevant financial law as Ijarah, Murabaha, and Salam law, which governs the commercial treatment of VAT.
Key clarifications from the FTA:
- Investment Fund Management: The operations of independent fund managers on UAE licensed funds, which include fund administration, investment management, and performance monitoring, continue to attract no VAT. Exemptions do not apply to unlicensed funds and necessitate a review of VAT registration for fund managers.
- Custody and Management of Virtual Assets: Charges made for managing cryptocurrency wallets are taxable when such services are offered in the UAE.
Zero-Rated Services and Transportation Export of Services
Amendments to Article 31 clarify that the provision of services that relate to moveable property located within the UAE is no longer eligible for zero-rating. In addition, Article 31 (1)(a)(2) has deleted the word “personal” to improve clarity.
Non-Zero-Rated Services:
- Assembly of goods in the UAE.
- Offering transportation to UAE leaseholders who do not pay tax.
- Restaurant catering and other services performed in the UAE.
- Services rendered under culture and arts, education or similar fields within the UAE.
- Services related to real estate within the UAE.
- Transportation of goods or people to different parts of the UAE.
- Use of telecommunications and information technology services within the UAE.
Residency Determination:
The phrase “a month” is now substituted with the words “30 days” in Article 31(2). This implies that a non-resident is deemed “out of the UAE” only if they spend at least one month outside the UAE “continuously” for twelve months. In the example of a non-resident, a company director for instance, if during a twelve-month period they spend over 30 days within the boundaries of the UAE, they are considered to be residing in the UAE.
International Transportation: The zero-rate takes effect for internal movement of freight by other charges if such movement is combined with international carriage and executed by the same person who performs international carriage. Loss of zero rate for other suppliers is in force.
Input Tax Apportionment
the FTA took the initiative to explain that a standard input tax split applies to all government bodies as well as charity organizations. The changes of article 55(7)(a) on computation of input tax does not change the standard VATGIT1 simplified input tax apportionment provisions and VATGIT1.
Unrecoverable Input Tax VAT
The new exception in article 53 allows for recovery of Value Added Tax (VAT) incurred on health insurance offered to employees. However, this will not be available for prior periods. For premiums paid in January 2024, recovery of VAT will only be available for the period from 15 November to 31 December 2024, and only where taxable supplies have been made and are supported by adequate documentation. Employers who are statutorily required to provide health insurance continue to recover input tax as before.
Other Changes in the VAT Legislation
The updated VAT Executive Regulation also provided for the following changes:
New Concepts:
- “Virtual assets” includes cryptocurrencies but does not include digital representation of the local currency.
- “Business day” has now been officially defined as stated in the Tax Procedures Law.
Tax Invoice Provisions:
- A summary tax invoice must be presented within 14 days subsequent to the relevant calendar month.
- Specific conditions now apply for invoices issued by agents acting on the behalf of principals.
Input VAT Deduction:
- New provisions determine eligibility when the taxed period is less than 12 months or when there is a change in membership of the tax group.
- Now businesses may request a fixed rate of recovery of input tax.
Composite and Deemed Supply:
- New guidance issued deals with the treatment of value added tax (VAT) on supplies made that are made up of several components.
- Other explanations focus on the valuation under deemed supply rules.
Profit Margin Scheme:
- The purchase price definition now encompasses all expenses and charges incurred in addition to the goods’ basic price.
Cancellation of VAT Registration and Deregistration:
- The FTA is now able to cancel VAT registration if the business no longer qualifies.
- The FTA may deregister entities with incomplete applications or those who do not meet the registration requirements.
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