Tax Alert: UAE VAT Executive Regulation Amendments

On October 2, 2024, the Federal Tax Authority (FTA) released an updated version of the Executive Regulation under Federal Decree-Law No. 8 of 2017 regarding Value Added Tax (VAT). These changes, introduced through Cabinet Decision No. (100) of 2024, will take effect from November 15, 2024.

The updates aim to improve clarity, provide additional details on key provisions and processes, and ensure consistency with earlier modifications in the Decree-Law and other tax-related regulations. Businesses are advised to review these changes closely to assess their impact on VAT compliance and operations.

This alert highlights the amendments with the broadest impact, focusing on Articles 30, 31, 42, and 46.?

Article 30 - Export of Goods

The requirements to apply the zero rate of VAT on goods exports are now simplified. Exporters must retain one of the following:

• Customs declaration and commercial proof of export
• Shipping certificate and official proof of export
• Customs declaration showing customs duties suspension

Paragraph 4 also defines 'Official Evidence,' 'Commercial Evidence,' and 'Shipping Certificate.' These updates align with Article 14 of the Excise Tax Regulations.

Article 31 - Export of Services

An additional condition has been added to zero-rate service exports under Article 31(1):

• The services must not be treated as provided in the UAE or a Designated Zone under Clauses 3-8 of Article 30 and Article 31 of the Decree-Law.

These clauses outline special place-of-supply rules for services like real estate, electronic, and telecommunication services.?

Article 42 - Tax Treatment of Financial Services

Additional services are now exempt from VAT:

• Investment fund management
• Transfer of virtual assets, including cryptocurrencies
• Conversion of virtual assets

Note: The last two exemptions are retroactively effective from January 1, 2018.

Investment fund management services provided by licensed fund managers are exempt from VAT. Both fund managers and funds should evaluate whether their services qualify for this exemption and assess the potential impact on VAT recovery and costs, especially when services are sourced from outside the UAE.

Virtual assets, defined as digital representations of value for trading or investment (excluding fiat currencies or financial securities), are exempt from VAT. Businesses handling virtual assets should assess the impact on their VAT position, especially regarding input tax recovery, and consider voluntary disclosures for past returns.

Article 46 - Tax on Multi-Component Supplies

A new provision addresses single composite supplies without a principal component, stating that VAT treatment should be based on the overall nature of the supply.

Other Key Amendments:

Article 1 - Definitions The definition of "Virtual Assets" and "Notification" has been expanded. Notifications now apply to any individual, not just concerned persons, tax agents, or legal representatives.

Article 2 - Real Estate Supply Real estate supply is no longer limited to sales or tenancy contracts; it now includes any disposal that results in a transfer of ownership from one person to another.

Article 5 - Deemed Supply Thresholds Goods supplied to each recipient in a 12-month period, with a value not exceeding AED 500, will not be considered a deemed supply. The threshold for government entities or charities is set at AED 250,000.

Article 53 - Health Insurance Input Tax Recovery Businesses can now recover input tax incurred on health insurance, including enhanced coverage provided free to employees and their dependents (one spouse and up to three children).

Article 55 - Specified Recovery Percentage Taxpayers can apply to use a specified recovery percentage to calculate recoverable input tax, based on the recovery percentage from the prior tax year.

In conclusion, the recent amendments to the VAT Executive Regulation introduce several important changes that businesses must understand to ensure compliance. From new VAT exemptions on virtual assets and financial services to updates on real estate transactions and health insurance input tax recovery, these changes may significantly impact business operations and tax obligations. It is crucial for businesses to review the amendments and assess their VAT positions to avoid any compliance issues or missed opportunities for tax recovery.

At MNV Associates, we specialize in helping businesses navigate complex tax regulations and ensure VAT compliance. Our expert team can guide you through these recent amendments, assist with tax filings, and optimize your VAT recovery.?

Contact us today to learn how we can support your business in staying compliant and efficient.