Decision No. 2 of 2025: The Authority’s Policy on Issuing Clarifications and Directives

CA Prateek Chhabra

Introduction

The Federal Tax Authority Decision No. 2 of 2025, effective from 1 March 2025, introduces a structured framework for issuing tax clarifications and directives in the UAE. This decision serves as a crucial regulatory update aimed at enhancing legal certainty, ensuring consistency in tax interpretation, and improving administrative efficiency for taxpayers.

By establishing clear guidelines for private and public clarifications, administrative exceptions, input tax apportionment, and advance pricing agreements, the decision strengthens the UAE’s tax regime. It ensures that taxpayers have access to authoritative guidance on tax matters, allowing them to comply with UAE Tax Laws with greater clarity and confidence.

This article provides a structured overview of FTA Decision No. 2 of 2025

Background and Legal Framework

The issuance of clarifications and directives falls within the statutory powers of the Federal Tax Authority, as provided under Article 4 of Federal Decree-Law No. 13 of 2016 on the Establishment of the Federal Tax Authority. This law grants the FTA jurisdiction over the administration, collection, and enforcement of federal taxes, including the issuance of official guidance to taxpayers on their tax obligations and associated penalties.

The decision streamlines the FTA’s approach to issuing clarifications and directives, ensuring consistency and legal certainty for taxpayers. It aligns with various UAE tax laws, including but not limited to the following:

  • Federal Decree-Law No. 8 of 2017 on VAT

  • Federal Decree-Law No. 47 of 2022 on Corporate Tax

  • Federal Decree-Law No. 28 of 2022 on Tax ProceduresFederal Decree-Law No. 7 of 2017 on Excise Tax

Issuance of Clarifications

Clarifications provide official guidance on tax treatment under UAE tax laws. The FTA issues two types of clarifications:

Private Clarifications

A private clarification is a written determination issued by the FTA upon request from a specific taxpayer, providing authoritative guidance on the interpretation and application of tax legislation in relation to the taxpayer’s particular facts and circumstances. A private clarification is issued in writing, duly signed, and stamped by the Director General of the FTA or his delegate or his representative.

Authority’s Mechanism for Issuing Private Clarifications
  1. Eligibility for Request Submission
    • A taxpayer or an authorized representative may submit a clarification request concerning federal taxes or penalties.

    • The request must specify whether it concerns one or multiple taxes, determining the applicable fee.

    • It must relate to tax legislation as applied to the taxpayer’s specific circumstances and cannot be used by third parties.

    • The request should include all necessary details for evaluation.
  1. Grounds for Rejection
    • The issue is already addressed in public guidance.

    • The request is based on hypothetical scenarios.

    • A previous clarification or tax assessment exists on the matter.

    • The taxpayer is under tax audit or assessment or inspection for the same issue.

    • There are concerns about tax avoidance or evasion under Corporate Tax Law or double taxation agreements.

  1. Consultation with the Ministry of Finance

    • If the request involves unclear tax legislation, the Authority consults the Ministry of Finance through a joint committee or official correspondence.

  1. OECD BEPS Action Five Compliance

    • For corporate tax matters under OECD BEPS Action Five, a summary of relevant clarifications is shared with the Ministry of Finance every two months for international tax information exchange.

Framework for Implementing Tax Clarifications

  1. Binding Nature:
    • Taxpayers can rely on clarifications issued by the Authority regarding their tax obligations or penalties.

    • The Authority is bound to implement such clarifications.
  1. Applicability:
    • Clarifications apply only to the taxpayer(s) who requested them.

    • For tax groups, clarifications apply only to group members.

    • In specific cases, clarifications may extend to a category of taxpayers involved in the same transaction.
  1. Authority’s Obligation:
    • The Authority must adhere to its clarification if the taxpayer’s factual circumstances remain unchanged.
  1. Validity:
    • Clarifications remain valid indefinitely unless a specific expiration period is mentioned.

    • They become void if the underlying tax law changes.
  1. Withdrawal & Supersession:
    • The Authority can withdraw incorrect clarifications, but taxpayers can rely on them until notified.

    • New clarifications override previous ones from their date of issuance.

    • If a public clarification or guide is issued on the same matter, any private clarification becomes invalid.

Public Clarifications

The Authority is responsible for issuing public clarifications, guides, and e-learning programs. However, any clarifications or guides related to tax policy must first be reviewed by the Ministry of Finance to ensure consistency with established tax policies before publication.

Directives

The FTA also provides mechanisms issuing directives through administrative exception decisions, input tax apportionment decisions, and advance pricing agreements, as follows:

Administrative Exceptions

The Authority may grant administrative exceptions under tax legislation when stipulated conditions and controls are met. These exceptions apply to specific situations and vary in nature, covering both Value Added Tax (VAT) and Excise Tax.

For VAT, exceptions relate to the following:

    • Tax Invoices

    • Tax Credit Notes

    • Evidence proving export of goods

    • The period required to the export goods.

For Excise Tax, exceptions apply to evidence proving the export of goods.

Mechanism for Issuing Administrative Exception Decisions

The Authority will review administrative exception requests only if they meet specific conditions:

  1. Eligible Applicants: The request must be submitted by an authorized person, such as:
    • The registrant or their authorized signatory (for natural persons).

    • The appointed tax agent.

    • A court-appointed legal representative.

    • A non-taxable person conducting business for excise tax purposes.

    • For tax groups, only the representative member can submit the request.
  1. Required Information: The request must include:
    • The specific category of administrative exception sought.

    • A detailed explanation of the request.

    • Supporting documentary evidence.
  1. Grounds for Rejection: The Authority may reject requests if:
    • The required conditions are not met.

    • The exception falls outside the Authority’s jurisdiction under tax laws.
  1. Review Process: The Authority will assess each request based on tax legislation, operational policies, and audit requirements, exercising its discretion accordingly.

Framework for Implementing Administrative Exception Decisions

The FTA applies administrative exception decisions if the provided facts align with the request.

    • It takes effect from the issuance date unless stated otherwise.

    • It remains valid for three years, unless relevant tax legislation is repealed or amended.

    • It does not constitute an explicit or implicit ruling on correct tax treatment.

Input Tax Apportionment

Under Decision No. 2 of 2025 and the Value Added Tax (VAT) Law, input tax incurred on taxable supplies is recoverable, whereas input tax related to exempt supplies or non-business activities is non-recoverable. In cases where expenses relate to both taxable and exempt supplies, the taxpayer must apply an input tax apportionment method to determine the recoverable portion.

Article 55 of the VAT Executive Regulation prescribes the standard method for input tax apportionment. However, in certain cases, this method may not produce a fair and reasonable result, necessitating an alternative approach.

Mechanism of Issuing Input Tax Apportionment Decisions

To request an alternative method for input tax apportionment, a VAT registrant must meet the following conditions:

    • The request must be submitted by an authorized person, such as the registrant, a tax agent, or a court-appointed representative. If part of a tax group, the representative member must apply.

    • The applicant must be VAT-registered for at least 6 months (12 months if requesting a specified recovery percentage).

    • The applicant must make both recoverable and non-recoverable supplies.

    • The standard apportionment method must not yield a fair and reasonable input tax recovery.

    • The applicant must specify the proposed alternative mechanism.

    • The applicant must provide evidence that the alternative method is more appropriate than the standard one.

Framework for Implementing Input Tax Apportionment Decisions

    • Approved decisions take effect from the first tax period after issuance and remain valid for two to four years, based on the chosen method.

    • Taxable person must recalculate adjustments based on actual use, with adjustments limited to three prior tax years.

    • The FTA may request additional information or reject incomplete or inaccurate submissions.

    • The FTA’s review and evaluation of requests do not involve auditing or verifying the validity of the applied tax treatment.

Advance Pricing Agreements (APAs)

Under Decision No. 2 of 2025, and the Corporate Tax Law, taxpayers may apply to the FTA for an Advance Pricing Agreement (APA) regarding the tax treatment of specific transactions or arrangements. Unilateral APA applications will be accepted from the 4th quarter of 2025, while the timeline for other types of APAs will be announced later.

Procedures for Issuing Clarifications, Input Tax Apportionment Decisions & Administrative Exception Decisions

  1. Timeline:
  • The Authority sets a timeline for issuing clarifications or Decisions from the date of receiving the application or all required information.
  • If additional details are needed, the Authority will request them, restarting the timeline upon receipt.
  • If the clarification or decision takes longer than expected, the applicant will be informed of the new timeframe.
  1. Applicant’s Responsibility for Additional Information:
  • If the Authority requests further details, the applicant must respond within 40 business days.
  • Failure to respond within this period allows the Authority to close the request.
  1. Incomplete Applications:
  • If an applicant starts but does not submit an application, the Authority sends an automated reminder after 20 business days.

The application must be submitted within 40 business days from initiation, or the Authority will close it.

How RVG can help

RVG Chartered Accountants provides expert UAE tax advisory services, ensuring businesses comply with FTA Decision No. 2 of 2025. We assist in private and public clarifications, administrative exception applications, input tax apportionment approvals, and Advance Pricing Agreements (APAs). Our team ensures timely submissions, strong justifications, and regulatory compliance to maximize approval chances. With a deep understanding of UAE tax laws, we help businesses navigate complex tax regulations, optimize tax positions, and mitigate compliance risks.

For expert tax guidance, contact RVG Chartered Accountants today!

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