Amendments to the VAT Decree Law
November 03, 2022
Pursuant to Federal Decree-Law No.18 2022 (new VAT Decree Law), the UAE has now announced amendments in several provisions of the Federal Decree-Law No. 8 2017 on Value Added Tax (VAT Decree-Law), making these the most significant amendments to the VAT legislation to date. The amendments will take effect from 1 January 2023.
The new amendments touched the following Articles: (5), (7),(13), (15), (21), (26), (27), (30), (33), (36), (45), (48),(55),(57),(61), (62), (65), (67),(74),(77) . Furthermore, the Decree-Law includes a new Article on the Statute of Limitation (Article 79 Bis)
In general, the amendments include both some changes which are materially crucial and those that rephrase and improve the legislative sequence in order to clarify and confirm the intended meaning of the text Law.
We have tabulated major amendments such as the exception from Registration for Zero-rated Supplies, Tax De-registration Cases, the place of residence of an agent, the restriction of Reverse Charge Mechanism, and the timeframe of issuance of a Tax Credit Note.
I- Major Amendments to the VAT Decree Law :
In this table below, we have compared the old provisions with the new provisions of the VAT Federal Decree Law including our comments on the amendments:
Article Number | Old Provisions | New Provisions | MBG Remarks |
Article (5) Supply of Goods | 2. Entry into a contract between two parties entailing the transfer of Goods at a later time, pursuant to the conditions specified in the Executive Regulation of this Decree-Law. | 2. Entry Into a contract between two or more parties entailing the transfer of goods at a later time, pursuant to the conditions specified in the Executive Regulation of this Decree-Law. | The new amendment insists on covering the scope of supply of goods and it covers the contract between two or more parties , rather than between two parties only. |
Article (7) Supply in Special Cases | - | 3. Any other supply specified in the Executive Regulation of this Decree Law. | The new amendment in this Article expands the scope of supply not considered as a supply as specified in the Executive Regulation of this Decree Law. |
Article (15) Exception from Registration | 1.The Authority may except a Taxable Person from mandatory Tax Registration upon his request if his supplies are only subject to the zero rate | 1.The Authority may except a Taxable Person from Tax Registration, whether he is registered or not, upon his request if his supplies are only subject to the zero rate | Earlier, the exception from Registration was limited to the person mandatorily registered. However, under the new amendments, the FTA enable more people to enjoy this administrative right if they meet certain conditions. Any person whether registered or not can now request exemption from registration if his supplies are only subject to the zero rate. |
Article (21) Tax De-Registration Cases | A Registrant shall apply to the Authority for Tax De-registration in any of the following cases:
1. If he stops making Taxable Supplies. 2. If the value of the Taxable Supplies made over a period of (12) consecutive months is less than the Voluntary Registration Threshold and said Registrant does not meet the condition stipulated in Clause (2) of Article (17) of this Decree-Law |
1. A Registrant shall apply to the Authority for Tax deregistration in any of the following cases:
a. If he stops making Taxable Supplies. b. If the value of the Taxable Supplies made over a period of (12) consecutive months is less than the Voluntary Registration Threshold and said Registrant does not meet the condition stipulated in Clause (2) of Article (17) of this Decree-Law 2. The Authority may, in accordance with the controls and conditions specified in the Executive Regulation of this Decree Law , issue a tax Deregistration decision, if the Authority finds that continuity of such Tax Registration may prejudice the integrity of the Tax system. 3. Tax deregistration shall not result in the relinquishment of Authority’s right to claim any Due Tax or Administrative penalties. |
Earlier , when the Registrant stopped making Taxable supplies or the total value of his taxable supplies made over the period of the 12 consecutive months dropped below AED 187,500, he had to deregister.
As per the new amendments, De-registration can also be made by the FTA if it finds that keeping Tax Registration threatens its interests. Please note that qualifying for an exemption from registration merely releases the person from the administrative action of registering and not from the liability of paying any Tax due or administrative penalties, if any. This also refers to the same treatment with regards to Registration, as when a person is required to register but he fails to ; in this case the Authority registers him and shall inform him. This confirms that the FTA upholds its rights and protects the interests of the public treasury in all cases and circumstances. |
Article (26)
Date of Supply in Special Cases |
1. The date of supply of Goods or Services for any contract that includes periodic payments or consecutive invoices shall be the earliest of any of the following dates, provided that it does not exceed one year from the date of the provision of such Goods and Services: a. The date of issuance of any Tax Invoice. b. The date payment is due as shown on the Tax Invoice. c. The date of receipt of payment. |
1. The date of supply of Goods or Services for any contract that includes periodic payments or consecutive invoices shall be the earliest of any of the following dates, a. The date of issuance of any Tax Invoice. b. The date payment is due as shown on the Tax Invoice. c. The date of receipt of payment. d. The date of expiration of one year from the date the Goods or Services were provided. |
Previously, the date of supply for continuous or consecutives supplies was conditioned by not exceeding one year from the date of the provision of goods and Services. As per the new amendment, this condition became a tax point along with other tax points. |
Article (27)
Place of Supply of Goods |
3. The place of supply of Goods that includes Export or Import shall be as follows: a. Inside the State in the following instances: 1) If the supply includes exporting to a place outside the Implementing States. 2) If the Recipient of Goods in an Implementing State is not registered for Tax in the state of destination, and the total exports from the same supplier to this state does not exceed the mandatory registration threshold for said state. 3) The Recipient of Goods does not have a Tax Registration Number in the State, and the total exports from the same supplier in an Implementing State to the State exceeds the Mandatory Registration Threshold. |
3. The place of supply of Goods that includes Export or Import shall be as follows: a. Inside the State in the following instances: 1) If the supply includes exporting to a place outside the Implementing States. 2) If the Recipient of Goods in an Implementing State is not registered for Tax in the state of destination, and the total exports from the same supplier to this state does not exceed the mandatory Registration threshold for said state. 3) The Recipient of Goods does not have a Tax Registration Number in the State, and the total exports from the same supplier in an Implementing State to the State exceeds the Mandatory Registration Threshold. 4) If Clause (1) of Article (26) of this Decree-Law applies, and the ownership of Goods is transferred in the State. |
The amendment of Article (27) of this Decree-Law indicates clearly that the place of supply for continuous supplies mentioned in Article (26) clause (1) is in UAE, provided that the ownership of goods is transferred inside the State. |
Article )30( Place of Supply in Special Cases |
8. For the Supply of transportation Services, the place of supply shall be where transportation starts. The Executive Regulation of this Decree-Law shall specify the place of supply for transportation Services if the trip includes more than one stop. |
8. For the Supply of transportation Services or transport related services, the place of supply shall be where transportation starts. The Executive Regulation of this Decree-Law shall specify the place of supply for transportation Services and Transport-related Services if the trip includes more than one stop. |
Prior to the amendment, the rule in Article 30(8) was limited to “transportation services’’ only. It is now amended to add ‘’transport related services’’ also into the scope. This amendment of Article 30 (8) doesn’t have an impact on the actual treatment of the place of supply for transport related services as previously the place of supply for transport related services was mentioned in the Executive Regulation in the Article (22) Clause (2) stipulates that “The place of supply of Transport-Related Services shall be the same as the place of supply of the transportation service to which they relate”. |
Article (33) The Agent | The Place of Residence of an agent shall be regarded as the Place of Residence of the principal in the following two cases:
1. If the agent regularly exercises the right of negotiation and enters into agreements in favor of the principal. 2. If the agent maintains a stock of Goods to fulfil supply agreements for the principal regularly. |
The Place of Residence of an agent shall be regarded as the Place of Residence of the principal in any of the following cases: 1. If the agent regularly exercises the right of negotiation and enters into agreements in favor of the principal. 2. If the agent maintains a stock of Goods to fulfil supply agreements for the principal regularly. |
Previously, for agency arrangements, to consider the place of residence of the agent as the Place of Residence of the principal, two conditions had to be verified. However, as per the new amendment, one of these two instances is enough to consider the place of residence of an agent as the place of residence of a principal. |
Article (48) Reverse Charge |
3. If a Registrant makes a Taxable Supply in the State to another Registrant of any crude or refined oil, unprocessed or processed natural gas, or any hydrocarbons, and the Recipient of these Goods intends to either resell the purchased Goods as crude or refined oil, unprocessed or processed natural gas, or any hydrocarbons, or use these Goods to produce or distribute any form of energy, the following rules shall apply. 5. Where a Recipient of Goods of any crude or refined oil, unprocessed or processed natural gas, or any hydrocarbons confirms in writing to the supplier that he is a Registrant for the purposes of applying Clause (3) of this Article, the following shall apply. |
3. If a Registrant makes a Taxable Supply in the State to another Registrant of any crude or refined oil, unprocessed or processed natural gas, or any Pure hydrocarbons, and the Recipient of these Goods intends to either resell the purchased Goods as crude or refined oil, unprocessed or processed natural gas, or any Pure hydrocarbons, or use these Goods to produce or distribute any form of energy, the following rules shall apply: 5. Where a Recipient of Goods of any crude or refined oil, unprocessed or processed natural gas, or any Pure hydrocarbons confirms in writing to the supplier that he is a Registrant for the purposes of applying Clause (3) of this Article, the following shall apply. 8. The Cabinet may issue a decision specifying other Goods or Services that are subject to the reverse charge mechanism specified by the Executive Regulation of this Decree Law. |
FTA has restricted the Reverse charge Mechanism to Pure Hydrocarbons rather than hydrocarbons, and this is to avoid any confusion that may be faced by the registrant to determine if his product is qualified as hydrocarbons or just contain a percentage of hydrocarbons. After this amendment only Pure hydrocarbon products will be subject to VAT under reverse charge mechanism and any other product contain hydrocarbons may be excluded from reverse charge mechanism. |
Article (55) Recovery of Recoverable Input Tax in the Tax Period |
1. Taking into consideration the provisions of Article (56) of this Decree-Law, the Recoverable Input Tax may be deducted through the Tax Return relating to the first Tax Period in which the following conditions have been satisfied: a. The Taxable Person receives and keeps the Tax Invoice as per the provisions of this Decree-Law, provided that the Tax Invoice includes the details of the supply related to such Input Tax, or keeps any other document pursuant to Clause (3) of Article (65) of this Decree-Law in relation to the Supply or Import on which Input Tax was paid. b. The Taxable Person pays the Consideration for the Supply or any part thereof, as specified in the Executive Regulation of this Decree-Law. |
1. Taking into consideration the provisions of Article (56) of this Decree-Law, the Recoverable Input Tax may be deducted through the Tax Return relating to the first Tax Period in which the following two conditions have been satisfied: a. Any of the following cases has occurred: 1) The Taxable Person receives and keeps the Tax Invoice as per the provisions of this Decree-Law, provided that the Tax Invoice includes the details of the supply related to such Input Tax, or keeps any other document pursuant to Clause (3) of Article (65) of this Decree-Law in relation to the Supply on which Input Tax was paid. 2) The Taxable Person imports the Goods and receives and retains invoices and import documents in accordance with the provisions of this Decree-Law and its Executive Regulations in relation to the Import for which Input Tax was paid or declared. 3)The Taxable Person imports Services, and receives and retains invoices in accordance with the provisions of this Decree-Law and its Executive Regulations in relation to the Import for which Input Tax was paid or declared b. The Taxable Person pays the Consideration for the Supply or any part thereof, as specified in the Executive Regulation of this Decree-Law. |
The FTA has clarified the incidences for the first condition which shall be satisfied to recover input VAT. According to the new amendments, Input VAT on import of goods can be recovered only if the person receives goods and keeps invoice and Customs document. Similarly, Input VAT on import of services can be recovered only when the person receives services and keeps invoices for the same. This amendment imposes rigid conditions for documentary evidence, and it is important for businesses to verify date of receipt of relevant documents before recovering input VAT on import transactions. |
Article (57) Recovery of Tax by Government Entities and Charities |
A Cabinet Decision shall be issued at the suggestion of the Minister determining the Government Entities and Charities entitled to recover the full amount of Input Tax paid by them, except for: 1. Tax excluded from recovery as specified in the Executive Regulation of this Decree-Law. 2. Tax paid for Goods and Services used to perform exempt supplies. |
1.Without prejudice to the general provisions of Input Tax recovery, Government Entities and Charities entitled to recover the full amount of Input Tax shall be determined in a Cabinet Decision issued upon the recommendation of the Minister, according to the following: a. Input tax paid by the Government Entity for the purposes of its Sovereign Activities. b. Input Tax paid by the Charity for the purposes of its Relevant Charitable Activity. 2. As an exception to the provisions of Clause (1) of this Article, the following shall excluded from recovery: a. Tax excluded from recovery as specified in the Executive Regulation of this Decree-Law. b. Tax paid for Goods and Services used to perform Exempt Supplies. |
The FTA has clarified the conditions to recover the Input VAT paid by the government entities and charities, According to the new provisions, government entities can recover the full Input VAT if this tax was paid for purposes of its Sovereign activities. However, charities can only recover input VAT paid for the purpose of the relevant charitable activity. |
Article (62) Mechanism for Output Tax Adjustment |
2. If the Output Tax calculated by the Registrant exceeds the Output Tax which should have been charged on the supply, the Registrant shall issue a Tax Credit Note according to the provisions of this Decree-Law. |
2. If the Output Tax calculated by the Registrant exceeds the Output Tax which should have been charged on the supply, the Registrant shall issue a Tax Credit Note according to the provisions of this Decree-Law, within (14) days from the date in which any of the situations provided for in Clause (1) of Article (61) of this Decree Law took place. |
According to the old provisions, the Registrant shall issue a Tax Invoice within 14 days from the date of any of supplies mentioned in Article (25) of the Federal Decree Law, the new amendments require the same timeframe for the periodic payments supplies or continuous supplied as specified in Article (26) of the Decree Law.
Further, the same timeframe of 14 days is applicable for the issuance of tax credit note. |
Article (67) Date of Issuance of Tax Invoice | The Registrant shall issue a Tax Invoice within 14 days as of the date of supply as stated in Article (25) of this Decree-Law. |
1.The Registrant shall issue a Tax Invoice within 14 days as of the date of supply as stated in Article (25) of this Decree-Law or Article (26) of this this Decree-Law. 2. The Executive Regulation of this Decree-Law shall determine the cases that are subject to periods other than that specified in Clause (1) of this Article, or the cases in which the Tax Invoice must be issued immediately in accordance with the controls specified therein. |
- The Statute of Limitation (SOL):
A statute of limitation has been introduced to the VAT Federal Decree Law that sets the maximum timeframe in which the Authority can act as per the tax procedure law. Once this period expires, the FTA is generally precluded from taking actions such as commencing of an audit or issuing a tax assessment. However, pursuant to the amendments in the Decree Law, a new Article (79) bis has been inserted which describes the exceptions from the general rule.
As a general rule, the FTA may not conduct a tax audit or issue a tax assessment to a taxable person after the expiration of 5 years from the end of the relevant tax period. However, as an exception to the general rule, the FTA may conduct a tax audit or issue a tax assessment to the taxable person after 5 years from the end of the relevant tax period in the following instances:
- If the FTA notified the taxable person of the tax audit before the expiry of the 5 years period, provided that the tax audit is completed or the tax assessment is issued within 4 years from the date of notification of the tax audit .
- If the tax audit or tax assessment issuance relates to a Voluntary Disclosure submitted in the 5th year from the end of the relevant tax period, provided that the tax audit is completed or the tax assessment is issued within 1 year from the date of submission of the Voluntary Disclosure.
No Voluntary disclosure is allowed to be submitted after 5 years from the end of the relevant tax period.
- In the case of tax evasion or in case of Tax Registration Failure, the FTA may conduct a tax audit or issue a tax assessment within 15 years from the end of the tax period in which the tax evasion occurred or in which the taxable person should have registered for tax.
MBG Remarks:
With these amendments in the Statute of Limitations, taxpayers should expect an increase in audit activity from the FTA in the coming months, as the FTA will likely make use of the new amendments to extend the standard statute of limitation by notifying taxpayers of a tax audit.
It is also expected that the VAT Executive Regulations will also be amended to further implement the changes made in the VAT Decree-Law.