- December 28, 2022
- Posted by: Shuraa Tax Consultant
- Categories: Dubai Tax System, VAT - Value Added Tax in UAE
The President of the UAE issued Federal Decree-Law No. 18 of 2022, amending the VAT Law. A new article on the Statute of Limitations is included in the VAT Law amendment, which also updates 25 other existing articles. On January 1, 2023, the revised provisions are supposed to go into effect.
It is noteworthy that various Articles of the VAT Law have been revised. Some of these will significantly affect how businesses are currently handling their VAT obligations. The addition of a new article on the statute of limitations, the deadline for the issuance of a tax credit note, the deadline for the issuance of an invoice for continuous supplies, the definition of hydrocarbons, the valuation of a deemed supply in the case of related parties, etc. are a few of these.
Although some amendments will not have a significant impact on the VAT positions previously adopted, they are included to add clarity. These amendments relate to wording changes, incorporating all relevant provisions in one place, etc., which are irrelevant to many businesses.
UAE VAT amendment highlights w.e.f 1st Jan 2023
The following is a summary of some significant amendments and their significance for taxpayers to be aware of:
New definitions for Relevant Charitable Activity, Pure Hydrocarbons, Tax Evasion, Tax Audit, Tax Assessment, and Voluntary Disclosure were added to the new Decree-Law.
Supplies explicitly regarded as outside the scope of VAT
A new clause has been added to Article 7 that states the Executive Regulations may specify any other supplies (aside from the provision of vouchers and the transfer of business).
VAT registration exemption
Both registered and non-registered individuals are covered by Article 15’s exception to registration requirements.
Date of supply in special cases
According to Article 26(1), one of the events used to determine the date of supply in special cases is the day one year has passed since the day the goods or services were provided.
Place of supply in special cases
Article 30(8) now specifies that the location where transportation begins will serve as the location of supply of services related to transportation.
Place of residence of a principal
According to Article 33, a principal’s residence is where the agent resides. The place of residence of the agent must be the same as the principal’s, according to the current VAT Law.
Value of supply
Article 37 will now take precedence over Article 36, which deals with the specific anti-avoidance rule for the value of supply or import of goods and services between related parties (value of deemed supply).
Goods subject to zero-rate VAT
Additional goods are listed in article 45 (clauses 4, 5, and 6) as being subject to zero-rate VAT. This covers the import of vehicles, the import of accessories for vehicles, and the import of rescue ships and planes.
Clause 3 of Article 48 states that Pure Hydrocarbons (defined in the new Decree-Law as “any kind of different pure combinations of a chemical equation made only of hydrogen and carbon”) are subject to the domestic reverse charge.
Recovery of Input VAT
Two new clauses that outline the requirements for the taxable person to recover VAT paid or declared on the import of goods or services have been added to Article 55 regarding the recovery of input VAT.
Recovery of Input VAT by Government Entities and Charities
Article 57 now mentions that government entities are permitted to recover Input VAT incurred for the performance of sovereign activities. Similarly, charitable organisations may claim input VAT paid for qualifying charitable activities.
Output VAT adjustment
The scenario where the taxable person applies an incorrect tax treatment is now covered by the output VAT adjustment mentioned in Article 61(1). The taxable person should now issue a tax credit note to modify the output tax in such circumstances.
Timeframe for issuing a tax credit note
Article 62(2) pertaining to the output VAT adjustment mechanism now includes a requirement that the taxable person issue a tax credit note within 14 days of the date that any of the occurrences listed in Article 61(1) occur.
Under Article 65(4), a taxable person who issues a tax invoice with a VAT declaration or who receives money marked up as VAT is required to pay the VAT to the Federal Tax Authority (FTA).
Timeline for issuing a tax invoice
According to Article 67(1), a tax invoice issued in accordance with Article 26 (date of continuous supply) must be issued no later than 14 days after the date of the supply.
Adding a New Article on the Statute of Limitations
Along with the changes, a new article (Article 79 bis) was also included in the VAT Law. This section is comparable to the one about the statute of limitations that was recently added to the Excise Tax Decree-Law.
The following topics are covered in the new article on statute of limitations:
- If the FTA has given the taxable person a notice to be audited, the 5-year statute of limitations will not apply if the audit is finished within 4 years of the notice’s issuance date.
- The statute of limitations will be extended by one year if the taxable person makes a voluntary disclosure within five years of the conclusion of the applicable tax period.
- The taxable person cannot submit a voluntary disclosure after five years have passed since the conclusion of the pertinent tax period.
The article also states that these prolonged periods may be modified further through a separate Cabinet Decision.
By the start date of January 1, 2023, taxpaying entities must review any changes to the VAT Decree-Law and ensure that they are prepared for implementation. This would entail a change in how VAT is applied for specific supplies (such as the supply of hydrocarbons and the importation of transportation equipment), the timing of the issuance of tax invoices and tax credit notes, and the practises for maintaining books and records for a longer period.
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