UAE VAT Law: A Legal Practitioners Perspective

Tyne Hugo Senior Associate tyne.hugo@bsabh.com

Tyne Hugo and John Peacock discuss the recent significant UAE VAT Law changes for 'Lexis Middle East Gulf Tax'. 

Federal Decree-Law No. 18/2022 brought in a number of changes to the UAE VAT Law, Federal Decree-Law No. 8/2017 in September 2022. These took effect on 1 January 2023 and there are a number of particularly interesting changes.
Firstly, a number of new definitions have been added to the VAT law. These include new definitions of terms including Tax Evasion; Tax Audit; Tax Assessment; and Voluntary Disclosure, and of the terms Relevant Charitable Activity and Pure Hydrocarbons.

To provide the authorities more flexibility a new provision has been added to Article 7 of Federal Decree-Law No. 8/2017 which permits the Executive Regulations on VAT to list any other supplies than those currently permitted to be treated as outside the scope of the VAT Law. There has also been a change which may help registered persons whose position has changed, as if a registered person is now only making zero-rated or exempt supplies and they no longer make any standard taxable supplies, they will be able to apply for deregistration and/or exemption from VAT registration.

Federal Decree-Law No. 8/2017 was not particularly clear in some places, including what was the required time period for
issuing Tax Invoices in respect of periodic supplies. The Federal Decree-Law No. 18/2022 amendments have clarified this and now clearly state that the Tax Invoice must be issued within 14 days of each periodic supply. This 14-day time limit also now applies to issuing Tax Credit Notes. There have also been changes on Tax Audits. Article 42 of Federal Decree-Law No. 7/2017 on Tax Procedures states that the Federal Tax Authority cannot generally proceed with an Audit after a period of five years, or 15 years with tax-evasion and non-registration cases. However, the Federal Decree-Law No. 18/2022 amendments have inserted Article 79 into the VAT Law which allows the five-year period to be extended if necessary.

What happens if an unregistered person issues an invoice which they call a ‘tax Invoice’ has also been tackled. Some unregistered persons in the UAE have been doing this (and have even been charging their customers VAT) although there was no basis for a Tax Invoice. In such cases it will now be obligatory for that VAT to be paid over to the FTA. This will also be the case even if the so called ‘Tax Invoice’ does not include ‘VAT’, as the final amount will be deemed to be VAT inclusive.

However, the changes brought in by Federal Decree-Law No. 18/2022 are not the only recent ones. A temporary amendment was also made to the definition of ‘Goods’ by Article 1 of Cabinet Decision No. 25/2018. The original definition’s wording on gold and diamonds was changed from ‘Gold, diamonds and any products where the principal component is of gold or diamonds’ to ‘Gold, diamonds and any products whose main component is of gold or diamonds which may include workmanship services directly related to the supply of these commodities’. The amended definition was applied retrospectively from 1 June 2018 and has been applicable to all transactions until 31 December 2022. However, from 1 January 2023, the original definition of ‘Goods’ in this context has been reapplied.

There have also been some administrative changes which will impact UAE VAT payers. The FTA has created a new system called Emara-Tax (ET) which links up numerous key government bodies such as the UAE Central Bank and national technology programs including UAE Pass. The new ET system is expected to enable faster administration of taxes, including VAT and should lead to more efficient and rapid government decision making in these areas. We may also see faster action by the UAE tax authorities in non-compliance cases, which may help reduce fine levels for taxpayers. Taxpayers who need assistance will also be better supported by this new system which will include better self-help options. 

The full article can also be read here on page 15 > Lexis Middle East Gulf Tax.

This article focuses on UAE Corporate Tax. 

BSA is a regional Law Firm in the Middle East with offices in the UAE, Oman and Saudi Arabia. As a full-service law firm our practice areas include litigation, arbitration and corporate services, including M&A, banking & finance, Intellectual Property, TMT, Fintech, employment and insurance.