United Arab Emirates: Amendment of the VAT Law – How will it affect businesses?
Federal Decree-Law No. 18 of 2022, amending the VAT Law, was released by the UAE’s President. The amendment to the VAT Law includes a new article about the Statute of Limitations and revises 25 previously existing articles. The revised provisions are scheduled to take effect on 1 January 2023.
Significant Changes to the Amendment of VAT Law:
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Tax Audits
The law currently prohibits the tax authorities from conducting a tax audit after five years have passed since the end of a tax period. Hence, the statute of limitations for UAE VAT Article 79 includes the following:
- Allow the tax authorities an additional four years to complete an audit provided it has issued a notice for audit or assessment before the expiration of five years.
- Allow the tax authorities an additional year to complete an audit if the taxpayer files a voluntary disclosure during the fifth year from the end of the relevant tax period.
- Allow UAE Cabinet discretionary powers to amend further the statute of limitation periods mentioned above.
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Tax Credit Notes
Article 62(2) says that the taxable person must show a tax credit note within 14 days of any of the following events, which are listed in Article 61(1):
- Canceled supplies
- Changes of the supply that led to a change in VAT treatment
- Changes to the consideration of the supply agreement
- Goods and services returned by the recipient and refunded by the supplier
- VAT treatment was misused and charged in error.
Businesses should ensure they have the methods to identify when to issue credit notes.
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Extended Tax Invoice Requirements
Under Article 26, a tax invoice issued (date of continuous supply) must be prepared no later than 14 days after the collection date, according to Article 67(1).
Businesses need to ensure that the proper enterprise resource planning (ERP) settings are in place so that this source can be recorded and put into the correct category. The requirement will also ensure that they know the valid date of supply since the 14-day period starts on the same day as the collection date.
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New Zero-Rated Supplies
Article 45 specifies additional items that are subject to zero-rate VAT. The following are applicable under this zero rate:
- The importation of transportation equipment
- The importation of commodities associated with transportation equipment
- The importation of rescue aircraft and ships, and
- The importation of items related to preventative and fundamental healthcare services.
To apply the zero rate, importers of any of these items must accurately levy VAT at the zero rate, as it is currently subject to the standard rate. Importers must also ensure that documents clearly show what is being imported, this includes:
- bills of lading,
- commercial invoices, and
- customs declarations
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Restriction of Domestic Reverse Charge
Under current law, the domestic reverse charge applies to unprocessed or processed natural gas supplies. It also applies to the supply of
- crude oil,
- refined oil, or
- any hydrocarbons
if the person receiving the goods plans to sell them or use them to make or distribute energy.
It can now only be used for pure hydrocarbons. So, both affected suppliers and recipients should make sure their business processes are up to date so that affected supplies can be found and the right VAT treatment can be used.
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Principal and Agents
Under the current VAT Law, the following considerations to observe first is to consider the place of the agent to be the same as the principal:
- Consistently negotiates on the principal’s behalf and enters into agreements, and
- Possesses a supply of commodities to carry out the principal’s supply agreements consistently.
However, Article 33 of the VAT Law Amendment defines that the principal’s and agent’s residences are now the same.
To accurately identify the VAT consequences of their transactions, the principal must verify the agent’s base of operations or fixed establishment.
Furthermore, taxpayers who use agency arrangements must carefully consider how the new residency limits may change their VAT status.
Source: tax.gov.ae
