9 VAT Law Updates Every UAE Business Should Know

The United Arab Emirates (UAE) has recently implemented updates to its Value Added Tax (VAT) laws. They are introducing over 30 amendments that impact various industries.

These changes, in effect from November 15, 2024, aim to align with international tax standards.

So, here are 9 of those VAT law updates in the UAE.

Introduction of Electronic Invoicing (E-Invoicing)

The UAE Ministry of Finance has issued Federal Decree-Law No. 16 of 2024. This marks the commencement of electronic invoicing (e-invoicing) in the UAE.

Basically, this law mandates that businesses issue, send, and receive invoices in an electronic format.

Lastly, the implementation of e-invoicing is scheduled in phases, with Phase 1 expected to commence in the second quarter of 2026.

Definition of Virtual Assets

The UAE government is introducing a new definition for “virtual assets”. This will include digital representations of a value that can be traded or converted and used for investment purposes.

Secondly, this definition excludes digital representations of fiat currencies or financial securities.

This clarification is for businesses that deal with digital assets. It will determine the VAT treatment applicable to such transactions.

MHR services includes Audit & Assurance, Financial Accounting, Financial & Business Advisory, Taxation including VAT, Corporate Tax & Excise Tax, Company Setup, regulatory & compliance and Management Consultancy.

VAT Treatment of Financial Services

The VAT treatment of financial services has been updated to include:

Providing investment fund management services independently for a fee, for funds licensed by a competent authority in the UAE.
Transferring ownership of virtual assets, including virtual currencies.
Conversion of virtual assets.
Managing virtual assets and enabling control over them.

Export of Goods Simplification

The government is also simplifying the requirements for applying the 0% VAT rate on exported goods. Now, businesses are now required to retain either a customs declaration or commercial evidence proving the export.

Exceptions from Deemed Supplies

Here’s another VAT law update.

The updated VAT regulations have introduced exceptions to the deemed supply provisions.

If the total output VAT due for all deemed supplies for a taxable person within a 12-month period exceeds AED 2,000, the VAT amount exceeding AED 2,000 is considered output VAT.

Voluntary Registration Criteria

The criteria for voluntary VAT registration has also been updated. Now, an individual may not register voluntarily unless they can prove to the Federal Tax Authority (FTA) that they are carrying on a business in the UAE and have the intention to make taxable supplies.

Deregistration to Protect Tax System Integrity

The FTA now holds additional authority to deregister a taxable person if it deems such action necessary to protect the integrity of the tax system.

This provision gives the FTA the authority to maintain a compliant tax environment by removing non-compliant entities.

Tax Treatment of Government Buildings

A new article specifies that the transfer of ownership or disposal of government buildings, real estate assets, and similar projects between government entities is not considered a supply under UAE VAT law.

This exemption applies retrospectively from January 1, 2023, and aims to facilitate inter-governmental transactions without VAT implications.

Improved Input VAT Recovery for Partially Exempt Businesses

The updated regulations will give more flexibility for partially exempt businesses in determining their input VAT recovery methods.

This change allows businesses to adopt a recovery method that best suits their operations, promoting fairness in VAT recovery.

FAQs

What are the recent amendments to the UAE VAT law?

The UAE Ministry of Finance issued Federal Decree-Law No. 16 of 2024, amending key provisions of the VAT law. These amendments introduce a roadmap for implementing electronic invoicing (e-invoicing) in the UAE, with Phase 1 of e-invoicing reporting scheduled for the second quarter of 2026.

How will the introduction of e-invoicing affect businesses?

The implementation of e-invoicing aims to streamline tax reporting, reduce errors, and lower compliance costs. Businesses will need to adapt their invoicing systems to comply with the new electronic requirements, ensuring accurate and timely submission of tax invoices.

What changes have been made to the VAT Executive Regulations?

On October 2, 2024, the Federal Tax Authority (FTA) published Cabinet Decision No. 100 of 2024, amending the VAT Executive Regulations. These amendments, effective from November 15, 2024, include over 30 changes impacting various industries, aiming to enhance clarity and compliance within the VAT system.

How do these amendments impact the definition of virtual assets?

The updated regulations introduce a new definition of virtual assets, described as “digital representation of value that can be digitally traded or converted and can be used for investment purposes, excluding digital representations of fiat currencies or financial securities.” This clarification affects the VAT treatment of transactions involving virtual assets.

What are the implications for businesses involved in exports?

The amendments to Article 30 of the VAT law provide clearer guidelines on the VAT treatment of exports, including the application of zero-rating and the documentation required to substantiate export transactions. Businesses engaged in export activities should review these changes to ensure compliance.

How do the changes affect financial services?

The updated regulations offer more detailed provisions regarding the VAT treatment of financial services, including exemptions and the allocation of input tax credits. Financial institutions and related service providers should assess these changes to understand their impact on operations.

What steps should businesses take to comply with these updates?

Businesses should conduct a thorough review of the updated VAT laws and regulations, assess the impact on their operations, and update internal processes and systems accordingly. Engaging with tax professionals can provide valuable guidance to navigate these changes effectively.

Conclusion

That’s a wrap for 9 VAT Law Updates Every UAE Business Should Know. These updates to the UAE VAT law reflect the country’s commitment to changing its tax system. The UAE government wants to pivot towards a system that aligns with international standards. That’s why businesses operating in the UAE should thoroughly review these changes for optimizing their tax positions.