UAE: Amendments to the Value Added Tax Law enacted

In addition to the introduction of new definitions for important terms, the most important changes concern, in particular, exemptions from VAT registration, the establishment of a 14-day deadline for the issuance of a tax credit note for the settlement of VAT, as well as the possibility for the tax authority to compulsorily deregister persons in certain cases.

 

Art. 1 of the VAT Law provides for a number of definitions. The Legislative Decree introduced new definitions for the terms “relevant charitable activity”, “pure hydrocarbons”, “tax evasion”, “tax audit”, “tax assessment” and “voluntary disclosure”.

 

Art. 7 of the VAT Law regulates exceptions to Art. 5 and Art. 6, which regulate the supply of goods and services. Accordingly, Art.7 specifies which services, in derogation of Art. 5 and Art. 6, are not considered as taxable supplies and are thus exempt from VAT. According to Art. 7 No. 1 and No. 2, the sale or issuance of a voucher as well as the transfer of all or an independent part of a business from one person to another taxable person for the purpose of continuing the transferred business do not constitute a taxable supply. Art. 7 No. 3 has now added a new clause stating that the Implementing Regulation may also specify other supplies that are not considered taxable supplies and thus do not fall within the scope of the VAT. Thus, the scope of possible exceptions has been considerably expanded.

 

Furthermore, Art. 15 of the VAT Law was amended. Until now, according to Art. 15 No. 1 of the VAT Law, the authorities could only exempt non-registered taxable persons from the obligation to register for tax purposes upon their request, if their services were only subject to the zero rate. Now Art. 15 No. 1 has been extended to already registered taxable persons.

 

Art. 26 of the VAT Law has also been extended. Art. 26 regulates the date of supply in special cases. Art. 26 No. 1 a-c specifies the date of supply of goods or services for a contract that provides for periodic payments or successive invoices. The relevant time is either the date of the tax invoice, the date on which payment is due according to the tax invoice or the date of receipt of payment, whichever is the earliest. This list is now supplemented in Art. 26 No. 1 d by the date on which one year has elapsed from the date of supply of the goods or services as one of the relevant facts for determining the time of supply.

 

Art. 36, which governs the special anti-avoidance rule for the value of supplies or imports of goods and services between related parties, now takes precedence over Article 37 (value of deemed supply).

 

Also the list of goods subject to zero-rating has been extended. Art. 45 (paragraphs 4, 5 and 6) has listed additional goods that are subject to a VAT of zero percent. These include the importation of means of transport, the importation of goods related to means of transport and the importation of rescue aircraft and ships.

 

Art. 48 No. 3 specifies that the domestic reverse charge applies to pure hydrocarbons (defined in the new Legislative Decree in Art. 1 as “any kind of various pure combinations of a chemical equation consisting only of hydrogen and carbon”).

 

In Art. 55, two new clauses on the refund of input tax have also been added, setting out the conditions for the refund by the taxable person of the VAT paid or declared on the importation of goods or services.

 

Art. 57 now explicitly mentions that public authorities may recover input VAT incurred on the supply of public authority activities. Similarly, non-profit organizations may reclaim input tax incurred on the supply of relevant non-profit activities.

 

The adjustment of output tax provided for in Art. 61 No. 1 now covers the case where the taxable person applies an incorrect tax treatment. In such cases, the taxable person should now issue a tax credit note to correct the output tax. 

 

Art. 62 No. 2 on the mechanism for the adjustment of output VAT now contains the condition that the taxable person must issue a tax credit note within 14 days of the occurrence of one of the cases referred to in Art. 61 No. 1.

 

Art. 65 No. 4 obliges the taxable person to pay VAT to the Federal Tax Authority when he issues a tax invoice showing VAT or receives an amount as VAT.

 

In Art. 67 No. 1, the time for issuing a tax invoice under Art. 26 (time of continuous supply) was set at 14 days from the time of supply. Previously, the said time referred only to the cases of Art. 25 of the VAT Law.

 

Art. 21 of the VAT Law, which deals with the de-registration of taxable persons for VAT purposes, has also been extensively amended. Previously, registered persons and companies had to de-register for VAT purposes if they ceased to provide taxable supplies or if the value of taxable supplies over the last 12 months was below the registration threshold amount (AED 375,000). The authority has now created for itself the ability to compulsorily de-register taxable persons in additional cases. This is the case when the authority determines that maintaining tax registration would prejudice the safety of the tax system.

 

With Art. 79, a new article was added to the VAT Law. It regulates the statute of limitations. Apart from certain exceptions, the tax authority may in principle no longer conduct a tax audit or issue a tax assessment after the expiry of five years after the end of the tax period in question.

 

However, a different rule applies if the tax authority informs the taxpayer of the tax audit before the end of the fifth year, provided that the tax audit or tax assessment is completed within four years from the date of such notification.

 

The tax authority may conduct a tax audit or issue a tax notice after the end of the fifth year from the end of the relevant tax period even if the audit or notice relates to a voluntary disclosure filed during the fifth year from the end of the tax period, provided that the tax audit or notice is issued within one year from the date of filing of the voluntary disclosure.

 

Nevertheless, caution is still required with regard to the limitation period, as Art. 79 also allows for a change of the mentioned periods by a separate cabinet decision.

 

To summarize, Federal Decree No. 18 (2022) is accompanied by a number of changes that provide for extensions in favor of the taxpayer, such as the extension of the goods subject to zero-rating and the further exemptions for VAT registration.

 

On the other hand, the authority can also carry out a compulsory deregistration under eased conditions. 

 

However, special attention should be paid to the newly introduced Art. 79 of the VAT Law. The amendment by Art. 79 is particularly important for those taxpayers who have not yet applied for a VAT refund within a period of five years. As a result of the above amendments, it is clear that the tax authority would not be allowed to review the periods after five years, which is a necessary part of the VAT refund procedure.