UAE Implements Revisions to VAT Executive Regulations

The UAE has announced a significant update to its Value Added Tax (VAT) Executive Regulations, marking the first major update since the VAT system was introduced in 2018. These changes, outlined in Cabinet Decision No. 100 of 2024, amend the earlier Cabinet Decision No. 52 of 2017. Set to take effect on November 15, 2024, the updates reflect the Federal Tax Authority's (FTA) efforts to adapt the tax system to the evolving business landscape in the UAE.

KEY CHANGES IN FINANCIAL SERVICES AND DIGITAL ASSETS

A major highlight of the new amendments is the formal definition of digital assets, now recognized under Article 1 as “digital representations of value that can be traded or transferred digitally and used for investment purposes, excluding fiat currencies or securities.” This change provides a clear framework for the taxation of digital assets, an increasingly important area for UAE businesses.

Article 42 has also been expanded to include financial services related to investment fund management and digital assets, such as the transfer and conversion of digital assets, including cryptocurrencies. These services are now exempt from VAT, with retrospective effect from January 1, 2018. 

BROADER DEFINITIONS OF SUPPLY AND DEEMED SUPPLY

The definition of "supply" has been extended to include the transfer of ownership of government buildings and real estate assets between government entities. This includes the transfer of usage rights and is effective retroactively from January 1, 2023. Additionally, the Deemed Supply Exception has been simplified, allowing up to AED 250,000 in transactions between government entities and charitable organizations within a twelve-month period.

PROFIT MARGIN SCHEME 

In Article 29, the Profit Margin Scheme has been clarified to include all costs and fees incurred to purchase goods in the calculation of the “purchase price.” This ensures greater transparency in applying the scheme.

EXPORT DOCUMENTATION

Businesses involved in exporting goods will benefit from new guidance under Article 30, which now specifies the documentation required to prove an export for zero-rated VAT purposes. This includes customs declarations and shipping certificates, offering much-needed clarity and reducing compliance burdens for exporters.

CLARIFICATION OF ZERO-RATED SERVICES

Amendments to Article 31 make it clear that certain services will not be zero-rated if the place of supply is within the UAE, such as services related to real estate, restaurants, and transport. International transport services remain zero-rated, but the conditions have been clarified.

COMPOSITE SUPPLY 

Article 46 introduces a new approach to composite supplies, where tax treatment will be based on the overall nature of the supply if no main component is identifiable.

INPUT VAT RECOVERY ON EMPLOYEE HEALTH INSURANCE BENEFITS

Businesses will now be able to recover input VAT on employee health insurance benefits, including coverage for one spouse and up to three children under 18. This amendment, introduced in Article 53, offers relief to employers by allowing VAT recovery on essential employee benefits.

TAX INVOICES

New timelines for issuing tax invoices have been established. Simplified tax invoices must now be issued on the date of supply, while summary tax invoices must be issued within 14 days of the end of the month that includes the date of supply.

VOLUNTARY REGISTRATION

Businesses are now permitted to voluntarily register for VAT if they demonstrate an intent to make specified taxable supplies.

CHARITY-RELATED AMENDMENTS

The definition of “Relevant Charitable Activity” has been removed, with new clauses introduced to further clarify the VAT treatment of activities related to charitable organizations.

Taxpayers are advised to refer to official UAE authorities’ communications for the most accurate and up-to-date information on tax-related matters.

SOURCE/RECOMMENDED READ: 

• Major Changes to UAE VAT Executive Regulations-October 2024 (saifaudit.com)