In the ever-evolving landscape of UAE VAT legislation, clarity and compliance remain paramount. The Federal Tax Authority (FTA) has released Public Clarification VATP044, addressing a pivotal issue—the issuance of tax invoices and the entitlement to input tax recovery for Concerned Services. This clarification is instrumental for businesses engaged in cross-border transactions, especially where the recipient is treated as the supplier under reverse charge provisions.
What Are “Concerned Services”?
The term “Concerned Services” refers to imported services where:
- The place of supply is considered to be in the UAE.
- The service would not be exempt if supplied locally.
This means if a UAE-registered business purchases services (like consulting, software, or digital marketing) from a foreign supplier, and those services are taxable under UAE VAT law, they fall under the definition of Concerned Services.
The Reverse Charge Mechanism: Who Pays the VAT?
Under Article 48(1) of the VAT Decree-Law, the recipient of the imported service (the UAE business) becomes liable for VAT—not the supplier. This is called the reverse charge mechanism.
Key Points:
- Registrants must account for due VAT on the value of the concerned service.
- This VAT should be reported as Output Tax in Box 3 of VAT return.
- Essentially businesses are making a self-supply entry to ensure tax neutrality.
♦ Note: This does not require actual payment to the FTA if eligible to recover the same VAT as input tax.
Tax Invoicing Requirements
Under normal VAT rules in the UAE, businesses are required to issue a tax invoice within 14 days of the date of supply. However, when it comes to concerned services subject to the reverse charge mechanism, the FTA has introduced practical relief:
No Separate UAE Tax Invoice Required – Subject to Conditions
Where a UAE-registered business receives services from an overseas supplier, it is not mandatory to issue a tax invoice to itself, provided the following conditions are met:
- They hold a valid invoice issued by the overseas supplier, or
- They hold documents which includes all essential information:
- Full names and address of both the supplier and recipient.
- The date when document was issued.
- The date when service ended.
- Description of the service supplied.
- Consideration for the supply.
- Currency used.
- Payment terms.
In exceptional situations where no invoice or equivalent documentation is provided by the overseas supplier, the UAE recipient may request an exemption from the tax invoice requirement by applying to the FTA.
Input Tax Recovery: When Is It Allowed?
Businesses can recover the Input VAT under the following conditions:
Conditions |
Explanation |
|---|---|
Business Purpose |
The service is used to make taxable supplies. |
Document Availability |
The Registrant must possess the overseas supplier’s invoice or a combination of documents that collectively meet the requirements of a valid invoice. A self-issued Tax Invoice is not mandatory for input tax recovery if such documentation is retained. |
Timing of Recovery |
Input Tax can be recovered in the first tax period—or the immediately following tax period—in which the Registrant both (a) obtains the relevant supporting document, and (b) has paid or intends to pay the consideration within six months of the agreed payment date. |
VATP044 brings much-needed clarity to the VAT treatment of imported services in the UAE. By outlining the reverse charge mechanism, easing tax invoicing requirements, and specifying input tax recovery conditions, the FTA has provided a practical framework for businesses to ensure compliance with Tax Invoices and Input Tax Recovery in Concerned Services.
