UAE VAT Update: Revisions to the VAT Executive Regulations

October 2024

The United Arab Emirates (UAE) VAT Executive Regulations (VAT ER) have been revised, effective from 15 November 2024. These changes will have a significant impact on businesses across various sectors. This alert outlines the key updates and provides guidance on how businesses should prepare for these changes. Notably, the financial services sector will experience substantial changes.

Amendments to the UAE VAT Executive Regulations were finalised on 6 September 2024 and published in Arabic in the Official Gazette (No. 783) on 16 September 2024. The Official Gazette sent out a notification email on 2 October 2024.

KEY HIGHLIGHTS

Financial Services – VAT Exemption for Fund Management and Virtual Assets

The VAT exemption for financial services in Article 42 of the VAT ER has been expanded to include:

• Management of investment funds, which involves services provided independently by a fund manager to licensed funds. This includes managing fund operations, investments, and performance monitoring.
• Transfer and conversion of virtual assets, including virtual currencies, with a retrospective effect starting from 1 January 2018.
• Management of virtual assets and control thereof.

While these exemptions reduce the compliance burden by eliminating invoicing requirements, they could complicate input VAT recovery for fund managers. Lessons from other jurisdictions like the EU suggest that discussions on investment fund management criteria are likely.

Zero-Rate for the Export of Goods

The revisions to Article 30 of the VAT ER clarify the documentation requirements for applying the zero rate on exports. Businesses will now have more flexibility in meeting these requirements, accommodating different export scenarios. Exporters must retain either:

• Customs declaration and commercial evidence of export.
• Bill of lading and official evidence of export.
• Customs declaration showing suspension of customs duties.

Zero Rate for Services and Transport

The amendments further restrict the application of the zero rate on services under Article 31 of the VAT ER. This includes limitations on services related to goods, transportation, real estate, and hospitality, among others.

For international transportation services, the domestic leg can only be zero-rated if provided by the supplier of the international transport.

Under Article 35(1)(b), specific conditions for zero-rating services directly linked to a means of transport have been added, generally requiring that these services be carried out on board the transport itself.

Input VAT Recovery on Health Insurance Expenses

The updated Article 53(1)(c)(3) allows businesses to recover input VAT on health insurance expenses for one spouse and up to three (3) children under 18, even if not required by local law. This simplifies VAT recovery for businesses regardless of the employee's visa-issuing Emirate.

Exemptions for Government Entities and Deemed Supplies

New provision in Article 3 (bis) excludes specific transactions between government entities from VAT, including the transfer of government real estate and related projects. It also introduces a new exception for deemed supplies involving government entities and charities, with a higher threshold before VAT is applicable.

additional amendments

The revised VAT ER includes several other important updates:

• Tax invoice requirements: New deadlines for issuing summary invoices and guidelines for agents.
• Input VAT recovery: New methods to calculate recovery entitlement, even with tax group changes.
• Composite supply rules: Clarified VAT treatment for supplies with multiple components.
• Profit margin scheme: Revised definition of "purchase price" to include all costs and fees.
• Tax registration cancellation: New conditions for the FTA to cancel a VAT registration.
• Various new and updated definitions.

Implications and next steps

These amendments will affect businesses across all sectors. Companies need to review and understand the changes, assess their impact, and make the necessary adjustments before the amendments take effect on 15 November 2024. Businesses should review their internal processes and update systems to ensure compliance.

How can we help

Russell Bedford offers a range of services to help businesses navigate these changes to the VAT ER. Our team can provide detailed analysis and compliance guidance. please get in touch with Directors John Donnelly (johndonnelly@rb-dubai.com) or Mark Mallari (markmallari@rb-dubai.com).