The UAE’s Value Added Tax (VAT) system, established under Federal Decree-Law No. 8 of 2017, has undergone significant amendments in 2024 through Cabinet Decision No. 100 of 2024, effective from November 15, 2024. The changes provide greater clarity and flexibility for VAT compliance, particularly in areas such as export documentation, zero-rating of services, financial services exemptions, and the recovery of Input VAT on health insurance. This blog will break down these key amendments in a clear and comprehensive manner.
Export Documentation: Enhanced Flexibility (Article 30)
One of the most critical updates is in the export of goods and the documentation required for businesses to qualify for zero-rating under VAT. The amendments have eased the requirements for export documentation, giving businesses more flexibility in proving their eligibility for zero-rating. The acceptable documents now include:
- Custom declaration and Commercial Evidence of export.
- Shipping Certificate and Official Evidence proving export.
- Customs declaration showing suspension arrangement of customs duties.
Additionally, the term “agent” has been added to Indirect Exports, broadening the definition and allowing overseas agents to secure and provide export documentation. This brings the VAT Law into alignment with the Excise Tax Law and offers an alternative to the often difficult-to-obtain exit certificate.
The amended article broadens the definitions of official evidence, commercial evidence, and shipping certificates for export documentation:
- Official Evidence now includes export certificates or clearance certificates issued by UAE customs or competent authorities, or by destination country authorities confirming the goods’ entry.
- Commercial Evidence refers to documents from sea, air, or land transport companies proving goods have left the UAE, such as:
- Air waybill or manifest.
- Sea waybill or manifest.
- Land waybill or manifest.
- Shipping Certificate serves as a substitute for commercial evidence if the same is unavailable.
Additionally, the FTA can now reject submitted documents if they don’t sufficiently prove goods have exited the UAE.
For businesses, this means easier compliance, as multiple forms of evidence are now acceptable for zero-rated exports.
Refinement in Zero-Rating Export of Services (Article 31)
Amendments to Article 31 clarify the scope of zero-rating for export of services. In the 2024 amendments clarifies which services can and cannot be zero-rated under VAT. Before the amendment, services supplied to non-residents were broadly zero-rated if certain conditions were met, such as the recipient being outside the UAE. However, the 2024 amendment specifies that services subject to special place of supply rules can no longer be zero-rated.
The amendment identifies following specific services as non-eligible for zero-rating:
- real estate services,
- transportation services,
- telecommunications and electronic services,
- hotel and catering services,
- services provided on goods such as installation of goods.
This removes any ambiguity and ensures businesses clearly understand that these types of services, when provided within the UAE, will be subject to VAT at the standard rate, regardless of where the recipient is located.
Expansion of VAT Exemptions in Financial Services (Article 42)
Two major categories of financial services now enjoy VAT exemptions:
Fund Management Services
Services performed by fund managers independently for a consideration, to funds licensed by the competent authority in the UAE, are now exempt. This includes but not limited to the following:
- management of fund’s operations,
- management of investments for or on behalf of the fund; and
- monitoring and improvement of the fund’s performance.
Virtual Assets
- Transfer of Ownership of virtual assets (including virtual currencies) are now exempt, with retroactive effect from January 2018
- Conversion of Virtual Assets are now exempt, with retroactive effect from January 2018; and
- Management of virtual assets is exempt with effect from November 15, 2024.
Activities outlined above will be taxable when the supplies are made for explicit fee, commission, discount, rebate, or something similar.
This aligns with global tax trends and brings the UAE VAT system in line with jurisdictions like Bahrain, which also clarified the VAT treatment of virtual assets. Businesses involved in managing funds or dealing with virtual assets will now enjoy a VAT exemption on these services, but must reassess their Input VAT recovery positions.
Input VAT Recovery on Health Insurance for Dependents (Article 53)
The list of non-recoverable Input VAT has been revised, now permitting businesses to recover Input VAT on health insurance expenses, including enhanced coverage for employees and their dependents (up to one spouse and three children), as long as providing such benefits is a legal requirement under the applicable labor laws of the UAE or within a Designated Zone.
Changes to VAT Registration and Deregistration (Articles 8, 14 & 14 bis)
Several updates were made to VAT registration and deregistration processes:
- Voluntary Registration now requires proof of intent to supply goods or services that are either zero-rated, standard-rated, or outside the VAT scope.
- The FTA can now deregister businesses with greater discretion, especially if maintaining registration might compromise the integrity of the tax system.
- The FTA now has the authority to deregister a business as soon as it determines that the conditions for deregistration are met. Previously, deregistration would take effect at the end of the relevant tax period in which the conditions were fulfilled.
If the FTA initiates deregistration, businesses must reapply for VAT registration if they meet the threshold requirements after deregistration
Zero Rating of International Transport Services (Article 33)
The revised provisions under UAE Cabinet Decision No. 100 of 2024 now specify that local transport services related to international transport are zero-rated only if provided by the same supplier handling the international transport. This clarification removes ambiguity regarding the local leg of international transport.
Adjustments in Tax Invoice and Credit Note Timelines (Article 59 & 60)
There have been changes to the deadlines for issuing tax invoices and managing credit notes.
- Simplified Tax Invoices must be issued on the date of supply.
- Summary Tax Invoices can be issued within 14 days from the end of the month in which the supplies occurred.
- Multiple Tax Credit Notes: The amendments require that when issuing multiple tax credit notes for the same invoice, each new note reflects the adjusted value from the previous one, ensuring accurate VAT adjustments and compliance.
- Agent issued Tax Invoices & Credit Notes: the amendment requires both the agent and principal to maintain detailed records, including names, addresses, and Tax Registration Numbers (TRN), ensuring transparency and compliance in their VAT obligations.
Exceptions for Government Entities and Charities (Article 3 bis & 5)
- Transactions between two Govt. Entities: The transfer or disposal of government buildings or real estate or any other similar projects, will not be considered a taxable supply under UAE VAT.This exception include cases where the right to use or exploit or utilise government buildings, real estate or any other similar projects is granted between government entities.
- Exception related to deemed supply: This amendment introduces limits on deemed supplies for government bodies and charities. It states that the total output VAT on deemed supplies must not exceed AED 250,000 for each government entity or charity over a 12-month period. Any excess amount beyond this threshold is treated as payable VAT.
Input VAT Apportionment (Article 55)
The amendments clarify the rules for Input VAT apportionment where businesses incur VAT on both taxable and exempt supplies. Key updates include:
- Tax Year Definition: A new clause has been added for determining the tax year for businesses when dealing with changes in VAT registration status.
- Tax Deregistration: The last day of the tax year is when a business is no longer considered a taxable person.
- Tax Group: When a member joins or leaves a tax group, the tax year will end on the last day before the change takes effect.
Proportional Adjustments: For businesses with a tax year shorter than 12 months due to changes in registration status, proportional adjustments to existing limit of AED 250,000 are now required for calculating annual “wash-up” amounts.
Relief: Companies can apply to the FTA to use a specified recovery percentage based on the previous year’s performance.
Amendments to the Profit Margin Scheme (Article 29)
Under UAE Cabinet Decision No. 100 of 2024, the Profit Margin Scheme, applicable to second-hand goods, antiques, and collector’s items, has been expanded with a clearer definition of the purchase price. Now, in addition to the price of the goods, any costs and fees incurred during the purchase are included in the calculation.
How RVG Can Help with UAE Cabinet Decision No. 100 of 2024
The recent Cabinet Decision No. 100 of 2024 has introduced significant changes to the UAE VAT regulations, impacting businesses across various sectors. As these amendments take effect from November 15, 2024, it is essential for businesses to understand the new rules, assess their VAT processes, and ensure compliance. At RVG Chartered Accountants, we specialize in offering comprehensive tax advisory services. With our deep expertise in UAE tax laws, we are well-positioned to help your business adapt to these updates.
Get in touch with us today to ensure your business is VAT-ready for 2024 and beyond!
