The UAE Ministry of Finance announced, on 28 October, amendments to certain provisions of the UAE Value Added Tax (VAT) regime. The changes will come into force on 1 January 2023.
A total of 24 changes were introduced by Federal Decree-Law No. 18 of 2022 on the Amendment of Some Provisions of the Federal Decree-Law No. 8 of 2017 on VAT, and one article was added in respect of the statute of limitation to the VAT Law.
The most significant changes include:
- Under Article 15, those persons who are registered and make taxable supplies are permitted to apply for an exception from VAT registration if all their supplies are zero-rated and/or they no longer make any supplies other than zero-rated supplies.
- Under Article 55, which deals with the recovery of pre-registration input VAT, the amendment now allows the taxable person to recover VAT paid or declared on the import of goods or services incurred by the taxable person before registration (on meeting certain requirements).
- Under Article 62(2), a Tax Credit Note must be issued within a 14-day period if the taxpayer intends to adjust the output tax, in line with the time frame set for issuing tax invoices.
- Under Article 65(4), it will be mandatory for the taxable person to pay the VAT to the Federal Tax Authority (FTA) in cases where such a person issues a tax invoice stating VAT on it or receives an amount as VAT.
- The date of issuance of a tax invoice under Article 26 (date of continuous supply) will be 14 days from the date of the supply.
- Under Article 33, the place of residence of a principal is redefined as the place of residence of the agent.
- Under Article 21, the FTA is empowered to forcibly deregister registered persons in certain cases, where necessary. The deregistration of taxable persons will not forfeit the FTA’s right to claim any tax dues or administrative penalties.
The new article on the statute of limitation (Article 79 bis) sets out that:
- The statute of limitation of five years will not apply to cases where the FTA has issued a notice to audit the taxable person, provided such an audit is completed within four years from the date of issuance of the notice.
- In the case where the taxable person files a voluntary disclosure in the fifth year from the end of the relevant tax period, the statute of limitation will be extended by one year.
- A voluntary disclosure cannot be filed by the taxable person after five years from the end of the relevant tax period.
- The exception to the above is tax evasion, which has a 15-year limit.
VAT was first introduced in the UAE in 2018, as part of the UAE’s initiative to diversify the economy and reduce its reliance on oil, with a 5% charge applying to most goods and services.
The Ministry of Finance said the amendments were aligned with international best practice under the Unified Agreement for VAT of the Cooperation Council for the Arab States of the Gulf and were based on feedback from business sectors and recommendations received from relevant parties.
“These amendments to the VAT legislation are another positive step for the UAE and demonstrate further that the country is keeping pace with the changing global economy,” said Simon Gordon, Managing Director of Sovereign Corporate Services in Dubai. “Owners of companies based in the UAE need to stay abreast of these changes and Sovereign’s team of VAT experts is always on hand to assist our clients with any queries or concerns.”
In addition to these VAT changes that will come into effect on 1 January 2023, the UAE is set to introduce a 9% federal Corporate Tax on business profits from the financial year starting on or after 1 June 2023.