The UAE Government recently made amendments to certain provisions of the VAT Law. “This amendment will be in effect from 1st January 2023”
The Federal Decree Law No. (18) Of 2022
The Federal Decree Law No. (8) Of 2017 on value added tax
We have summarized the key amendments out of 85 which is based on the unofficial translation available on the public domain:
Statute of Limitation (‘SOL’) – Article 79 (Bis)
• New Article on SOL is inserted in the VAT Law
• A statute of limitation sets out a timeframe within which the tax authorities must complete tax audit or issue a tax assessment. If the specified timeframe is exceeded, FTA’s right for undertaking a tax audit or raising a tax assessment in respect of the taxpayer becomes time-barred, i.e. inadmissible, in most cases.
• With this development, unaudited businesses should remain audit ready and expect to receive notice of a tax audit within first half of 2023 and those already under audit may have prolonged audit inquiries.
Tax Procedures Law [Article 83 amended]
• With new Article (79) bis, the SOL provisions in the VAT Law will supersede the SOL provisions in the Tax Procedures Law.
• The Tax Procedures Law will still apply where no similar provision in the VAT Law.
Pure Hydrocarbons [Article (48) amended]
• In the past, there was some uncertainty as to whether the domestic reverse charge provisions may apply to products that partially contain hydrocarbons, such as lubricants.
• To provide more clarity on application of reverse charge mechanism, the VAT Law now expressly limits the reverse charge to pure hydrocarbons only.
Timeline for raising tax invoices for continuous contracts and for raising tax Credit Notes [Article (67) and (62) amended]
• Timelines for raising tax invoices and tax credit notes have been clarified
• Invoice for continuous supplies should be raised within 14 days from the date of supply under Article 26 of the VAT Law
• For adjusting output tax in specified instances, tax credit note should be issued within 14 days from the date of the adjustment event
Input VAT recovery on import of goods & services [Article (55) amended]
• Most businesses report output VAT on import transactions in box 3 and box 6 of the VAT returns and recover input VAT in box 10 of the VAT return. Since tax is netted off, some businesses do not always verify that they hold sufficient evidence for input tax recovery.
• This amendment imposes concrete conditions for documentary evidence, and it will be important for businesses to verify date of receipt of relevant documents before recovering input VAT on import transactions.
• Example: Advance payment is made to an overseas service provider in November 2022 and invoice is received in January 2023, in such case, the UAE business would be required to report the output VAT under the reverse charge in the tax period related to November 2022 and recover input VAT only in the tax period related to January 2023, i.e. on receipt of supplier tax invoice.
A new place of supply provision for continuous / periodic supplies [Article (27) (3) (a) (4) added]
• A supply that involves import or export of goods may include periodic payments or multiple invoices. Some of these payments may be made, or invoices may be issued, when goods are outside the UAE; while other such events may occur when goods are in the UAE
• This amendments clarifies that the place of supply for such supplies will be in the UAE if the ownership of the goods is transferred in the UAE.
• This means that where the ownership is transferred in the UAE, the UAE VAT would also apply to payments which were made when the goods were physically outside the UAE
Place of supply of transport-related services [Article (30) (8) amended]
• Prior to the amendment, the place of supply rule for the transport-related services was (and still technically is) in Article 22(2) of the VAT Executive Regulations. That place of supply rule in Article 22(2) specifies that the place of supply for transport- related services is the same as for the transportation services to which they relate.
• Since the amended Article 30(8) of the VAT Law provides that the place of supply for both transportation services and for transport-related services is where the transportation starts, the amendment does not impact the actual finding of the place of the supply. As such, the purpose of the amendment is, arguably, to combine all main place of supply rules in one provision of the VAT Law.
Taxable persons are needed to review amendments made to the VAT Decree – Law and insure fulfilment readiness by the effective date of 1 January 2023.
This would indicate a change in the operation of VAT for certain inventories (e.g. stock of Hydrocarbons, import of means of transportation, etc.), the time period of issuance of a tax invoice/ tax credit note and the procedure of bookkeeping for a longer period.
How Excellence can help
We at Excellence are professionals with the ability to understand the technical and legal terms related to the respected amendments and additions altogether proving more than sufficient and reliable for you VAT service requirements keeping up to date with the latest laws and provisions set by the Government of UAE.