The UAE has implemented some important amendments to its VAT framework for 2024, which will apply to businesses nationwide. These amendments, issued via Cabinet Decision No. 100 of 2024, aim at simplifying tax processes and providing greater VAT treatment clarity on different goods and services. In this blog, we’ll deconstruct the essential amendments so that you can see how these new rules will affect your business.

Introduction to the UAE VAT Amendments

Effective November 15, 2024, the UAE Federal Tax Authority (FTA) has just issued updated VAT Executive Regulations. The amendments help to clear up a few crucial aspects of VAT, including definitions, registration, deregistration, and VAT treatment of different supplies and services.

Here we cover the main modifications to the VAT system, stressing the major changes businesses should be aware of.

 

New Definitions Under the VAT Law

One of the first changes to note is the introduction of several new definitions. These are important as they help clarify the scope of VAT and ensure that it aligns with evolving business needs. Some of the key definitions include:

Business Day

The term “Business Day” has been clearly defined to align with the Tax Procedures Law, which ensures consistency in how VAT-related deadlines and timelines are calculated.

 

Standard Rate

It has been clarified that the standard VAT rate of 5% will continue to apply for most goods and services under Article 3 of the VAT Decree Law.

 

Virtual Assets

Virtual assets, such as cryptocurrencies like Bitcoin and Ethereum, are now explicitly included under the scope of VAT. However, digital representations of fiat currencies are excluded from VAT.

 

Changes in VAT Registration and De-registration

A few key updates have been made in relation to VAT registration and de-registration:

Mandatory and Voluntary Registration

Businesses that choose to register for VAT voluntarily must now provide proof of their business activities in the UAE. This ensures that only active businesses are registered.

 

De-registration Process

The FTA now has the authority to de-register VAT for businesses that fail to complete the de-registration process when necessary. If a business no longer meets the requirements for VAT registration, the FTA can also cancel their VAT registration.

 

Group Tax Registration

If a member of a VAT group ceases taxable activities, the group must notify the FTA. This ensures that all businesses within a group comply with VAT regulations.

 

VAT Amendments on Supplies and Zero-Rating

The new VAT Executive Regulations also include changes to VAT treatment on supplies and the process for zero-rating certain goods and services:

Supply of Goods

If real estate is sold and ownership is transferred, it is now considered a taxable supply. This means VAT will apply to the sale of real estate.

 

Composite Supplies

When a business provides multiple goods or services together as a package, and the prices of the individual components aren’t specified, the supply may be treated as a single supply for VAT purposes.

 

Deemed Supplies

The regulations now consider commercial gifts and samples with an output tax value of AED 2000 or more over a 12-month period as deemed supplies. The previous threshold of AED 500 per recipient has been removed.

 

Zero-Rating Provisions

Zero-rating continues to apply to certain goods and services. The amendments provide more clarity on the eligibility for zero-rating:

Export of Goods

The documentation requirements for proving the export of goods from the UAE have been relaxed. A combination of customs declarations, shipping certificates, and clearance documents will suffice as evidence of export.

 

Export of Services

The scope of zero-rating has been expanded for certain services. However, exclusions apply to services related to real estate, transportation, and services consumed within the UAE.

 

International Transport Services

Businesses that provide local transportation services may qualify for zero-rating, but only if they are linked to international transportation and the same provider offers both international and local services.

 

Healthcare Services

Healthcare services continue to qualify for zero-rating, ensuring that medical services remain accessible and affordable.

 

Financial Services

New rules clarify the VAT treatment of financial transactions, including those involving Islamic finance structures.

 

Input Tax Recovery and Exemptions

There have also been updates to the rules for recovering input tax, especially for businesses involved in both taxable and exempt supplies:

Input Tax on Exempt Supplies

The rules governing the recovery of input tax on exempt supplies have been refined. This will help businesses better allocate VAT on goods and services that are used for both taxable and exempt purposes.

 

Apportionment of Input Tax

The amendments make it easier to allocate input VAT across taxable and exempt supplies. This ensures that businesses can accurately calculate how much VAT they can recover.

 

Adjustments Under the Capital Assets Scheme

Adjustments under the Capital Assets Scheme UAE VAT for the internal use of capital assets have been clarified. The first year of the Capital Asset Scheme is now defined as the first year the asset is brought into use, even if the asset was ready in the previous year.

 

VAT Invoicing and Record-Keeping

The new regulations also introduce some changes in the invoicing and record-keeping requirements for businesses:

Tax Invoices

Businesses must ensure that their tax invoices meet new requirements, including specific details and formatting.

 

Record-Keeping

The FTA has extended the duration for which businesses must keep VAT records. This helps ensure that businesses remain compliant and can provide necessary documentation in case of audits.

 

Special Provisions for Government and Foreign Entities

The amendments also introduce special provisions for certain entities:

Government Transfers

Transfers of real estate and projects between governments are now explicitly included within the scope of VAT.

 

Foreign Governments and Diplomatic Entities

The new regulations provide updated conditions for VAT refunds for foreign governments and diplomatic entities, ensuring that international organizations can benefit from VAT exemptions where applicable.

 

Bottom Line

The 2024 UAE VAT Executive Regulations amendments introduce some crucial changes for businesses. Whether you own a small business or operate a large enterprise, it’s important to comprehend these changes in order to be compliant and evade possible penalties.

To make sure your business is within the new legislation, it is advisable to use a VAT expert or tax advisor. By remaining current with current tax legislation, you can go on expanding your business without bothering about VAT complications.