Amendments to the VAT Executive Regulation in the UAE

In October 2024, the Federal Tax Authority (FTA) of the UAE introduced an updated version of the Executive Regulation to the Federal Decree-Law No. 8 of 2017 on Value Added Tax (VAT).

The amendments were made in accordance with Cabinet Decision No. 100 of 2024 and will come into effect on November 15, 2024.

The changes are aimed at improving transparency, and aligning the regulations with previous amendments in the Decree-Law and other tax legislations. It is crucial for businesses to closely examine these amendments to understand the possible implications for their operations and VAT obligations.

Due to the scale of these changes, this review highlights the most significant or broader impacting amendments, particularly those concerning Articles 30, 31, 42, and 46. The other amendments are listed in the penultimate section.

Article 30: export of goods
The requirements for documental confirmation for the application of zero VAT rate on the export of goods have become less burdensome. Exporters are now required to provide one of the following confirmations:

1. A Customs declaration and documents confirming the export;
2. A shipping certificate and official export confirmation;
3. A Customs declaration confirming the suspension of customs duties, in the case that goods are placed in a customs suspension regime.
4. A new item has been added, defining terms such as 'Official confirmation', 'Commercial evidence', and 'Shipping certificate', aligning VAT provisions with the Executive Regulations to Federal Decree-Law No. 7 of 2017 on Excise.

Article 31: export of services

1. A new condition has been added to Article 31(1) for applying the zero VAT rate to the export of services:

The services must not be considered provided in the UAE or a specially designated zone in alignment with points 3-8 of Article 30 and Article 31 of the Decree-Law.
Points 3-8 of Article 30 and Article 31 of the Decree-Law specify special rules for services connected with real estate, telecommunications, and electronic services. This amendment may reduce the volume of services taxed at a zero-rate, as services provided in the UAE (for example, those relating to real estate), are now taxed at the standard rate.

Article 42: tax treatment for financial services
A number of new financial services are exempt from VAT:

1. Investment fund management;
2. Transfer of ownership of virtual assets, including cryptocurrency;
3. Conversion of virtual assets.
4. Investment fund management
5. Investment fund management includes services provided by a fund manager for a fee, such as managing the fund's operations and investments, control, and improvement of its performance.

Fund managers need to assess whether their services fall under the VAT exemption, and how this will impact their VAT refund and overall costs. Investment funds acquiring these services also need to check if the services qualify for exemption, especially if they are provided from abroad.

Virtual Assets
Virtual assets are defined as a "digital representation of value that can be traded or converted for investment purposes, excluding fiat currencies and financial securities". 

Companies dealing with virtual assets should review their VAT positions considering the new exemption, including issues related to VAT refund. Voluntary adjustments to historical reporting may be needed.

Article 46: VAT on Supplies Comprising Multiple Components
An item has been added that covers situations where the supply consists of multiple components without a main one. VAT in this case will be calculated based on the overall nature of the supply.

Other amendments

• Article 1: extends definitions, in particular for terms "virtual assets" and "notification".
• Article 2: supply of real estate covers not only sale and lease but any form of transfer of property rights.
• Article 3: transfer of ownership or use of state buildings between government bodies is not considered a supply.
• Article 5: if the value of goods supplied to each recipient over 12 months does not exceed 500 AED, this is not considered a supply. The threshold for authorities and charitable organizations is 250 thousand AED.
• Article 8: voluntary registration is possible upon proof of conducting business in the UAE or intent to make taxable supplies.
• Articles 14, 14(bis),15 and 16: changes related to cancellation of tax registration.
• Article 53: it is possible to reclaim VAT paid on medical insurance for employees and their families.
• Article 55: taxpayers can apply to use a specific refund percentage based on the previous year's data.
• Article 59(5): simplified invoices cannot be used when applying the reverse charge mechanism.
• Article 60: registered agents can issue credit notes on behalf of the principal, preserving the principal’s data.

Businesses should carefully analyze the impact of the amendments on their VAT positions. The broad coverage of changes requires all industries to review their positions to assess potential implications.

In particular, fund managers, funds, and companies dealing with virtual assets should consider whether their services comply with the requirement for VAT exemption and the impact of this on reclaiming input VAT.