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Introduction

The UAE has recently amended its VAT framework through Cabinet Decision No. 100 of 2024, which took effect on 15 November 2024. This decision introduces key updates to the Executive Regulation of Federal Decree-Law No. 8 of 2017 on VAT, aiming to enhance clarity, compliance, and practical application of the law.

The Federal Tax Authority (FTA) refers to the regulation before this date as the “Previous Executive Regulation” and the updated version as the “New Executive Regulation.”

In this article, we highlight the main changes, explain their practical impact, and provide examples where applicable.

Major Changes to UAE VAT Executive Regulation

Key Articles Amended in the New Executive Regulation

This Public Clarification issued by the Federal Tax Authority aims to highlight the main changes introduced to the Executive Regulation. These updates impact a wide range of VAT-related topics, from registration thresholds to zero-rating provisions.

Below is a summary of the Articles amended under Cabinet Decision No. 100 of 2024:

• Article 1 – Introduction of new definitions
• Article 2 – Supply of goods
• Article 4 – Supply of more than one component
• Article 5 – Exceptions related to deemed supply
• Article 7 – Mandatory registration
• Article 8 – Voluntary registration
• Article 14 – Tax deregistration
• Article 15 – Deregistration or amendment of tax group registration
• Article 16 – Exception from registration
• Article 23 – Telecommunications and electronic services
• Article 29 – Profit margin scheme
• Article 30 – Zero-rating export of goods
• Article 31 – Zero-rating export of services
• Article 33 – Zero-rating of international transport (passengers and goods)
• Article 34 – Zero-rating of specific means of transport
• Article 35 – Zero-rating of goods/services related to transport
• Article 37 – Residential buildings

• Article 38 – Zero-rating buildings used by charities
• Article 41 – Zero-rating healthcare services
• Article 42 – Tax treatment of financial services
• Article 46 – Tax on supplies involving more than one component
• Article 50 – Special rules of import
• Article 52 – Input tax recovery for exempt supplies
• Article 53 – Non-recoverable input tax
• Article 55 – Apportionment of input tax
• Article 58 – Adjustments under the capital assets scheme
• Article 59 – Tax invoices
• Article 60 – Tax credit notes
• Article 64 – Tax return and payment obligations
• Article 65 – Recovery of excess tax
• Article 68 – VAT refund for tourist visitors
• Article 69 – VAT refund for foreign governments
• Article 71 – Record-keeping requirements

In addition, two new Articles were introduced:

• Article 3 (bis) – Exceptions of Supplies
• Article 14 (bis) – Tax deregistration to protect the integrity of the tax system

It is important to note that this Public Clarification focuses on key substantive changes and does not address all textual modifications made to the Executive Regulation.

 

Detailed explanation of the amendents made

Article 1 – Definitions (New and Updated Terms)

Previous Position:
The earlier Executive Regulation lacked precise definitions for certain concepts, which occasionally led to interpretative ambiguity, especially in emerging areas like virtual assets.

Changes Introduced in the New Executive Regulation:
The revised Article 1 introduces the following key definitions:

• Business Day – Now aligned with Federal Decree-Law No. 28 of 2022 on Tax Procedures, ensuring consistency across UAE tax legislation.
• Standard Rate – Officially defined as 5%, clarifying references across the Decree-Law and simplifying interpretation.
• Virtual Assets – A critical addition in light of the growing use of cryptocurrencies and blockchain. Virtual assets now include:
  • Cryptocurrencies such as Bitcoin, Ethereum, and similar digital tokens.
  • Any digital representation of value that can be traded, converted, or used for investment purposes.

However, digital representations of fiat currency (e.g., UAE Dirhams) and financial securities are explicitly excluded from this definition.

Implications:

• The inclusion of virtual assets reflects the FTA’s forward-looking stance on the taxation of digital economy elements.
• Clarifying the standard rate and aligning the term business day with the Tax Procedures Law eliminates ambiguity in legal interpretation and compliance.

Article 2(4)(b) – Supply of Goods: Transfer of Real Estate Ownership

Previous Position:
While the transfer of real estate was generally understood to constitute a supply of goods, there was room for interpretation, especially in certain structured transactions or assignments.

Change Introduced:
The amended Article 2(4)(b) now explicitly confirms that any disposal of real estate resulting in the transfer of ownership from one person to another is considered a supply of goods.

Implication:

• This amendment removes any ambiguity and ensures real estate transfers are consistently treated as taxable supplies (subject to applicable VAT treatment: standard, zero-rated, or exempt).
• It also reinforces that VAT liability arises at the point of legal transfer of ownership—whether through sale, gift, or other means.

Example:
If a business disposes of a commercial property by transferring ownership to another entity, this transaction is treated as a supply of goods and subject to VAT under the revised rule.

Article 3(bis) – Exceptions of Supplies

Under Article 3(bis), key amendments have been introduced to define exceptions for certain government-related transactions involving real estate assets and government buildings.

Clause 3(bis)(1)(a): Transfer of Government Assets

Grants, disposals, and other transfers of ownership of government properties will not be regarded as taxable supplies under VAT. This means these transactions fall outside the scope of VAT. The key point here is that such transactions between government entities (as defined in Article 1 of the Decree-Law) are excluded from VAT.

The term government entities encompasses:

• Ministries
• Government departments and agencies
• Authorities and public institutions
• Any other entities designated by the Cabinet as government entities.

This ensures that inter-governmental transfers, which do not impact the tax position of the involved entities, are not subjected to VAT.

Clause 3(bis)(1)(b): Granting of Rights to Use or Exploit Government Assets

In addition to transfers of ownership, the grant or transfer of rights to use, exploit, or utilize government buildings and real estate assets are similarly excluded from VAT. This applies to government entities transferring such rights to other entities within the same government framework.

Retroactive Effect: These provisions apply retroactively from 1 January 2023. This ensures that any government transfers conducted after this date will automatically be excluded from VAT, even if they were previously taxed.

Definition of “Government Buildings, Real Estate Assets, and Projects of Similar Nature”

The types of assets covered under this exception are:

• Government operational premises
• Government capital projects
• Infrastructure projects funded or managed by the government
• Public utility assets that serve a governmental or public purpose
• Developed government land used for public benefit

It’s important to note that this exception will not apply universally to all government buildings or projects. The Minister of Finance will issue a separate decision that will define the exact scope of the projects eligible for this exception.

Summary of Impact:

These amendments ensure that VAT does not apply to certain intra-governmental transfers, thus maintaining fiscal neutrality within government operations. This aims to reduce administrative burdens and prevent unnecessary tax implications for the government.

Article 4(4) – Supply of More Than One Component

Article 4(4) of the Executive Regulation was amended to provide further clarification on the concept of composite supplies, which involves multiple components supplied as a single offering. The clarification ensures that a composite supply exists only under specific conditions.

Key Amendment:

For a supply to qualify as a single composite supply, it must meet two conditions:

1. All the components of the supply must be provided by a single supplier.
2. The price of each individual component must not be separately identified or charged.

This means that even if a supply comprises several components, if the price for each component is separately identified or charged, it cannot be treated as a single composite supply.

Practical Example:

• Example of Composite Supply: A company charges a single price for organizing a marketing campaign. The fee covers the entire campaign, including venue, catering, promotional goods, etc. If these components are bundled into one price without itemizing individual costs, it qualifies as a single composite supply.
• Example of Not a Composite Supply: If the same campaign contract itemizes each component:
  • AED 5,000 for venue rental
  • AED 3,000 for catering
  • AED 2,000 for promotional goods These would not be treated as a single composite supply because the prices of the different components are separately identified.

Subcontracting Clarification:

Even when a supplier subcontracts certain components to a third party, as long as the supplier remains contractually responsible for the overall service to the recipient, the supply is still regarded as being made by the single supplier.

Article 5 – Exceptions Related to Deemed Supply

Amendments to Article 5 clarify certain aspects of deemed supplies and introduce new thresholds and conditions that impact the application of VAT.

Clause 5(1): Supply of Samples and Commercial Gifts

Article 5(1) of the Executive Regulation was revised to specify that samples and commercial gifts are not considered as deemed supplies if the value of such goods does not exceed AED 500 per recipient within a 12-month rolling period.

• Example: If a business gives away samples or gifts, and the total value of the samples or gifts for each recipient within 12 months is below AED 500, these supplies will not be regarded as deemed supplies and will therefore not trigger VAT.

This amendment aligns with previous regulations but brings more clarity to the threshold, aiming to prevent small-value commercial activities from being taxed unnecessarily.

Clause 5(2)(a): Output Tax Threshold for Deemed Supplies

This amendment modifies the output tax threshold for deemed supplies. Under the revised regulation, if the total output tax on deemed supplies in a 12-month period does not exceed AED 2,000, the supply will not be treated as a deemed supply.

• Threshold Clarification: If the output tax surpasses AED 2,000, only the excess amount over AED 2,000 will be considered payable VAT.

Example:

• • A pharmaceutical company distributes free goods worth AED 60,000 (e.g., AED 600 per 100 recipients). The output tax on these goods is calculated as AED 2,857 (60,000 x 5/105).
  • Since the total output tax exceeds AED 2,000, the VAT payable to the FTA would be the excess (i.e., AED 857), as the amount exceeding AED 2,000 is considered taxable.

This amendment aims to simplify the process by exempting minor deemed supplies from VAT and imposing tax only on the excess amount.

Deemed Supplies in Case of Government or Charity Entities

An important exception applies when both the supplier and recipient are either a government entity or a charity as defined under Article 1 of the Decree-Law. In such cases, the output tax threshold increases to AED 250,000 (instead of AED 2,000) over a 12-month period per supplier.

• This provision aims to exempt government and charity-related transactions from smaller deemed supplies, ensuring that large-scale operations are the focus of VAT application.

Article 8 – Voluntary Registration

Changes to Article 8(6) of the Executive Regulation address the conditions under which a person may voluntarily register for VAT, particularly with respect to demonstrating business activity and intent to make taxable supplies.

Voluntary Registration Eligibility

The amendment clarifies that, in order to qualify for voluntary registration, a person must:

1. Conduct business in the UAE.
2. Demonstrate intention to make taxable supplies, as outlined in Article 54(1) of the Decree-Law.

To demonstrate intention, applicants must provide evidence such as contracts to supply taxable goods or services to other businesses or individuals for consideration.

• Key Point: A UAE resident cannot apply for voluntary registration if they incur taxable expenses exceeding the registration threshold but do not intend to carry on business in the UAE. This ensures that VAT registration is reserved for active businesses with taxable activities, rather than those who incur costs but do not generate taxable supplies.
• Example: A business can prove its intention to register voluntarily by providing evidence of contracts to supply goods or services that are subject to VAT.

Article 14 – Tax Deregistration

Amendments to Article 14 of the Executive Regulation address the process of VAT deregistration and provide clearer guidelines on when and how the Federal Tax Authority (FTA) can deregister a person or entity from VAT.

Clause 14(4): FTA Authority for Deregistration

The amendment to Article 14(4) allows the FTA to deregister a person from VAT if they initiate a deregistration application but do not complete the process. For example:

• If a person creates a deregistration application on the EmaraTax system and saves it as a draft without completing it, and if that person has been consistently submitting nil returns or no returns due to cessation of taxable supplies, the FTA can take action to deregister them.

This change ensures that businesses or individuals who are no longer conducting taxable supplies or who fail to complete the deregistration process are appropriately removed from the VAT register.

Clause 14(5): Effective Date of Deregistration

The amendment to Article 14(7), renumbered as 14(5), allows the FTA to determine the effective date of deregistration to be different from the date requested by the registrant. The registrant may request a date for deregistration, but the FTA can apply a different effective date based on its assessment.

• Example: If a company applies for deregistration with an effective date of 1st July but the FTA believes that the cessation of taxable activities occurred earlier, it may set the effective date to a prior date.

Clause 14(9): Post-Deregistration Compliance

A new clause 14(9) confirms that deregistration does not absolve the person from complying with the provisions of the Decree-Law and the Regulation. This includes the possibility that a registrant may need to reapply for tax registration in the future if the circumstances change.

• Example: If a business deregisters but later begins making taxable supplies again, it must reapply for VAT registration once the mandatory registration threshold is exceeded.

Article 14(bis) – Protection of Tax System Integrity

The new Article 14(bis) introduces provisions where the FTA can deregister a person without them submitting a deregistration application, to protect the integrity of the tax system. This can occur in the following situations:

1. The person no longer meets the tax registration requirements as per the Decree-Law.
2. The person has not applied for deregistration, or initiated but failed to complete the application.
3. The FTA identifies any other conditions warranting deregistration.

This provision allows the FTA to proactively remove individuals or entities from the VAT register if they no longer meet the criteria or if their registration may undermine the integrity of the system.

• Example: If a person who was previously required to be registered for VAT no longer meets the criteria and does not apply for deregistration, the FTA can take action to remove them.

Re-Registration Obligation

If a person is deregistered but later becomes liable to register again (e.g., if they resume taxable activities and exceed the mandatory registration threshold), they are required to apply for re-registration.

Article 15 – Deregistration of a Tax Group

Changes in Article 15 pertain to the deregistration of tax groups.

Clause 15(1): FTA Deregistration of Tax Groups

The amendment adds the term “any” to allow the FTA to deregister a tax group in any of the listed situations. For example, if a group no longer meets the criteria for a tax group, the FTA can initiate deregistration.

Clause 15(2)(a): Removal of Member from Tax Group

The amendment clarifies that the FTA must remove a member from a tax group if that member ceases to make taxable supplies. This ensures that only entities making taxable supplies remain in a tax group.

• Onus on Representative Member: The representative member of the tax group remains responsible for informing the FTA when a member no longer meets the requirements to be part of the group and must apply for an amendment to the group.

Article 16 – Exception from Registration

Article 16(3) was amended to require taxable persons to notify the FTA if there are any changes in their business that could make them ineligible for the exception from registration. This should be done within 10 business days of making a standard-rated supply or import.

• Example: If a person who was previously exempt from VAT registration starts making standard-rated supplies(e.g., selling taxable goods or services), they must notify the FTA within 10 days.

Article 23 – Telecommunication and Electronic Services

The Arabic text of the preamble to Article 23(2) was amended to clarify that electronic services refer to services that are delivered automatically over the internet, electronic networks, or electronic marketplaces.

• This clarification ensures that services provided over digital platforms and networks are properly categorized as electronic services under VAT, and thus subject to VAT, depending on the nature of the service.

Article 29 – Accounting for Tax on the Profit Margin

The amendments to Article 29 of the Executive Regulation primarily focus on the definition of purchase price and how it relates to the profit margin scheme for VAT purposes. Key changes include:

Clause 29(5) – Definition of Purchase Price

The amendment introduces a new definition of “purchase price” which now includes not only the purchase price of the goods but also any costs and fees incurred in acquiring the goods. These costs can include Customs duties, shipping fees, handling charges, wrapping costs, and installation charges that are directly re-charged by the seller.

• Example: If a taxable person purchases a machine for AED 10,000 from a non-registrant, and is charged AED 1,000 for shipping and AED 500 for installation, the total purchase price for the purposes of the profit margin scheme would be AED 11,500.

Exclusion of Certain Charges by Registrants

Where the shipping and installation charges are incurred with a registrant (i.e., a VAT-registered supplier), these charges are not included in the purchase price. The reasoning behind this is that the recipient can recover the input tax on such services by utilizing the tax invoice issued by the VAT-registered supplier.

• Example: If the same shipping and installation services are charged by a VAT-registered supplier, the taxable person may recover the input tax and these costs will not be added to the purchase price for the profit margin scheme.

Article 30 – Zero-Rating the Export of Goods

Article 30 outlines the documentary requirements for applying the zero-rate to the export of goods. The amendments ease the documentation burden for exporters and provide greater flexibility in the types of documents that can be used to substantiate eligibility for zero-rating.

Clause 30(1)(b) and 30(2)(b) – Documentary Evidence for Zero-Rating

The amendments to Article 30(1)(b) and Article 30(2)(b) specify the types of documents that must be retained to substantiate the eligibility for zero-rating on exports. The following combinations of documents are now acceptable:

• A customs declaration along with commercial evidence proving the export.
• A shipping certificate along with official evidence confirming the export.
• Customs declarations confirming the goods were placed under the customs suspension regime, in accordance with the GCC Common Customs Law.

Before 15 November 2024, the only acceptable official evidence for exports leaving the UAE was the exit certificate issued by the local emirate’s Customs Department. From 15 November 2024, additional options will be available.

Clause 30(4)(a) – Official Evidence of Export

From 15 November 2024, official evidence for zero-rating can be:

• An export certificate (exit certificate) issued by the relevant Local Emirate’s Customs Department, verifying the departure of goods from the UAE, or a clearance certificate issued by the same authority.
• Alternatively, evidence from the destination country, such as a document or clearance certificate certified by local authorities (e.g., a stamp or seal), confirming the goods entered that country.
• Note: The documents must be in either Arabic or English, or certified translations must be retained in one of these languages.

Clause 30(4)(b) – Commercial Evidence for Export

Commercial evidence refers to documents issued by transportation companies (sea, air, or land) that prove the transport and departure of goods from the UAE. This evidence can include:

• Air waybills
• Sea waybills
• Land waybills

This flexibility allows exporters to use commercial transport documentation as evidence, which may be more readily available than other forms of official evidence.

Clause 30(4)(c) – Shipping Certificates

The term “shipping certificate” is defined in the new regulation. It is a certificate issued by transport companies proving that goods were transferred and departed from the UAE. This certificate can be used in lieu of commercial evidence when such evidence is not available.

Clause 30(6) – FTA Discretion in Accepting Documents

The FTA now has the discretion to reject documents if they do not sufficiently prove that the goods have exited the UAE. For example, documents may be rejected if:

• The text is not legible.
• The required particulars under Article 30(5) cannot be determined from the documents.

This amendment ensures that only clear, accurate, and sufficient documentation is accepted to substantiate the zero-rating of exports.

Article 31 – Zero-Rating the Export of Services

The amendments to Article 31 primarily focus on clarifying the conditions under which exported services can qualify for zero-rating and establishing exclusions for certain services when supplied in connection with assets or activities within the UAE.

Key Amendments to Article 31:

1. Removal of the Term “Personal” (Article 31(1)(a)(2))
   • The term “personal” has been removed to clarify that the export of services may not qualify for zero-ratingif the services are supplied directly in connection with moveable assets located in the UAE at the time the services are performed. This ensures that services related to tangible assets within the UAE are excluded from zero-rating.
2. Conditions for Zero-Rating of Exported Services (Article 31(1)(a)(3))

The new provision specifies that certain services supplied to non-residents will not qualify for zero-rating if the services are:

1. • Related to goods (e.g., installation services) that are located in the UAE when the services are performed.
   • The supply of a means of transport (e.g., leasing vehicles) where the means of transport is in the UAE when placed at the disposal of the lessee and the lessee is not a taxable person.
   • Restaurant, hotel, and food and drink services performed in the UAE.
   • Cultural, artistic, sporting, or educational services performed in the UAE.
   • Services directly related to real estate located in the UAE.
   • Transportation services where goods or passengers are transported from the UAE.
   • Telecommunication and electronic services used and enjoyed in the UAE.

These amendments clarify that services physically performed within the UAE or related to assets within the UAE are excluded from the zero-rating.

1. Non-Resident Presence (Article 31(2))

The amendment replaces the term “a month” with “30 days” to calculate the total number of days a non-resident is present in the UAE over a rolling 12-month period. If the non-resident is in the UAE for more than 30 days in this period, the recipient is regarded as being in the UAE when the services are supplied.

1. • Example: If a non-resident’s director is in the UAE for more than 30 days during the past year, the services may not be zero-rated as it is reasonably foreseeable that the services may be used within the UAE.
2. Government or Charity Services (Article 31(3)(b))
   • If the service is supplied to a government entity or charity that would be eligible for full input tax recovery under Article 57 of the Decree-Law, the service may still be zero-rated, provided all other conditions under Article 31(1) are met.

Article 33 – Zero-Rating International Transportation Services

Article 33 addresses the zero-rating of international transportation services, and the amendments clarify the conditions under which domestic transportation services connected to international transport may qualify for zero-rating.

Key Amendments to Article 33:

1. Domestic Transportation and International Transport (Article 33(1)(d))

The amendment to Article 33(1)(d) clarifies that domestic transportation of goods as part of an international transport service can only be zero-rated if the same supplier provides both the domestic and international legs of the transportation.

1. • Example: If a taxable person is transporting goods from Dubai to Mumbai via Abu Dhabi, the domestic leg (Dubai to Abu Dhabi) qualifies for zero-rating only if both legs of the journey (Dubai to Abu Dhabi and Abu Dhabi to Mumbai) are supplied by the same taxable person.
   • If the domestic leg is subcontracted to another transporter (e.g., from Dubai to Abu Dhabi) while the international leg is handled by a different supplier (e.g., from Abu Dhabi to Mumbai), the domestic transportation service will not qualify for zero-rating.
2. Subcontracting and Liabilities

If a transport service is subcontracted, it may still qualify for zero-rating, provided the original supplier remains contractually liable for both the domestic and international transportation services. This ensures that the tax treatment remains consistent despite subcontracting.

1. • Example: If an international transport company subcontracts the domestic leg of the transport to a local company, the international transport company remains liable for the full transportation service, and the entire service can still be zero-rated, assuming all other requirements are met.
2. Supplies Related to International Transport (Article 33(2))

The amendment to Article 33(2) removes references to supplies treated as taking place outside the UAE. It specifies that only goods and services with a place of supply in the UAE qualify for zero-rating under Article 33(2), provided other relevant conditions are met.

1. Limitations on Zero-Rating Services (Article 33(2)(b))

The amendment clarifies that, when services are supplied during international transport, the zero-rating applies only to services supplied to the recipient of the transportation service. Services provided to any other person during the international transport will not qualify for zero-rating.

Article 34 – Zero-Rating Certain Means of Transport (“Qualifying Means of Transport”)

The amendment to Article 34 extends the zero-rating provisions to the importation of qualifying means of transport and clarifies the types of transport that qualify for zero-rating.

Key Amendments to Article 34:

1. Zero-Rating Applies to Importation:
   • The zero-rating under Article 45(4) of the Decree-Law is not limited to the supply of qualifying means of transport but also applies to their importation. This ensures that both the supply and importation of these means of transport are subject to zero-rating if all conditions are met.
2. Clarification on Qualifying Means of Transport:
   • The definition of qualifying means of transport has been refined to specify that only ships, boats, and other floating structures designed or adapted for commercial transportation of passengers and goods qualify for zero-rating.
   • Transport designed or adapted for recreation, pleasure, or sports does not qualify for zero-rating. For instance, commercial fishing ships, drilling ships, or dredgers are excluded from the zero-rating provision, as their primary purpose is not the transportation of goods or passengers.

Article 35 – Zero-Rating Goods and Services in Connection with Means of Transport

The amendments to Article 35 clarify which goods and services related to the supply of a qualifying means of transport can qualify for zero-rating.

Key Amendments to Article 35:

1. Renumbering of Clauses:
   • The clauses have been renumbered to improve the structure and flow of the regulation and to distinguish between the different categories of goods and services that qualify for zero-rating.
2. Direct Connection to Qualifying Means of Transport:
   • The zero-rating is limited to services directly related to the operation, repair, maintenance, or conversion of qualifying means of transport. These include:
     • Repair services carried out on board the qualifying transport.
     • Maintenance services (e.g., cleaning, repainting, inspection).
     • Conversion of the transport (e.g., changing an aircraft designed for commercial passenger transport to one designed for cargo).
3. Exclusion of Certain Services:
   • Services such as cleaning of a hangar in which an aircraft is stored, though necessary for maintenance, are not eligible for zero-rating as they are not provided directly in connection with the qualifying means of transport.
4. Condition on Vessels in the UAE:
   • The services will not qualify for zero-rating if they are rendered in respect of a vessel that does not meet the conditions of being a qualifying means of transport.

Article 37 – Residential Buildings

Article 37 has been amended to clarify that hotel apartments, serviced apartments, or similar properties are not classified as residential buildings.

Key Amendment to Article 37:

• The supply of a hotel apartment, serviced apartment, or similar property in the UAE is subject to 5% VAT rather than qualifying for zero-rating or exemption. This ensures that short-term accommodation properties are taxed similarly to other types of commercial supplies.

Article 38 – Zero-Rating of Buildings for Charitable Use

Article 38(2) has been deleted, as the definition of “relevant charitable activity” has been moved to Article 1 of the Decree-Law. This simplifies the regulation by centralizing the definition.

Article 41 – Zero-Rating Healthcare Services

The amendment to Article 41(4) expands the scope of zero-rating to include both the supply and importation of certain healthcare goods.

Key Amendment to Article 41:

• Healthcare-related goods and services now include importation along with supply, ensuring that the zero-rating provisions apply to both activities when meeting the specified criteria.

Article 42 – Tax Treatment of Financial Services

The amendments to Article 42 affect both the definition of “Islamic financial arrangement” and the treatment of virtual assets.

Key Amendments to Article 42:

1. Islamic Financial Arrangements:
   • The definition has been updated to include relevant laws governing financial transactions like Ijarah, Murabaha, and Salam. This expands the scope of services that qualify as Islamic financial arrangements under VAT.
2. Exemption for Fund Management Services:
   • The management of investment funds by a fund manager is exempt from VAT under Article 42(3)(d), provided the funds are licensed by the relevant UAE competent authority.
   • If the fund is not licensed, the fund management services will be subject to VAT, and fund managers need to evaluate their VAT registration status.
3. Virtual Assets and Cryptocurrency:
   • The transfer of ownership of virtual assets, including cryptocurrencies (e.g., Bitcoin), is exempt from VAT under Article 42(3)(e), with retroactive effect from 1 January 2018.
   • This retroactive exemption means that businesses engaged in buying, selling, or exchanging cryptocurrencies should assess their historical VAT position and possibly issue tax credit notes for any VAT paid previously.
   • The management or holding of virtual assets for an explicit fee is subject to VAT.
4. Virtual Currencies and Cryptocurrencies:
   • Cryptocurrencies are a subset of virtual currencies, which are not treated as money from a VAT perspective. Therefore, businesses should be careful about how they classify and apply VAT on transactions involving virtual assets.

Article 46 – Tax on Supplies of More Than One Component

A new paragraph has been added to Article 46(1) to clarify that, when a composite supply is made (i.e., a supply that includes multiple components), the tax treatment will be based on the general nature of the supply as a whole.

Key Amendment to Article 46:

• If a supply consists of multiple components and does not have a principal component, the VAT treatment will be based on the overall nature of the supply. This helps avoid ambiguity and ensures consistent tax treatment for composite supplies.

Input Tax Recovery in Respect of Exempt Supplies – Article 52

Key Amendment:

• Change in language: The word “or” is replaced with “and” in Article 52(2) to align with Article 31(2).
• Impact: A person with short-term presence in the UAE (< 1 month) is only considered to be outside the UAE if their presence is not effectively connected with the supply.

Example:

• A tourist or someone in transit (with no meetings related to the supply) is treated as outside the UAE.
• A person attending business meetings connected to the supply, even briefly, is not considered outside the UAE.

Non-Recoverable Input Tax – Article 53(1)(c)

General Rule:

• Employers cannot recover VAT on free goods/services provided for personal benefit of employees—unless exceptions apply.

New Exception – Article 53(1)(c)(3):

• Employers can recover VAT on health insurance provided to employees and their families, even if not legally required, from 15 November 2024.

Definition of “Family” for this purpose:

• One husband, one wife, and up to three children under 18.

Example:

• Employee with:
  • 2 wives, and 5 children (aged 18, 17, 15, 10, 6)
  • VAT can be recovered for: employee, 1 wife, and 3 youngest children under 18.
  • VAT not recoverable for: second wife, child aged 18, and 1 extra child under 18.

Retroactive Application:

• Not allowed. If insurance was paid in Jan 2024, only VAT from 15 Nov to 31 Dec 2024 is recoverable (on a prorated basis), provided it supports taxable supplies and records are maintained.

Reminder:

• Employers may still recover VAT under Article 53(1)(c)(1) if legally obliged to provide the insurance.

3. Apportionment of Input Tax – Article 55

Clause Renumbering and Additions:

• This is relevant for input tax adjustments and annual recovery calculations—as adjustments and reconciliations apply at the end of the tax year.
• Clause 4: Defines events that end a tax year:
  • Tax deregistration – The last day the person was a taxable person
  • Joining a tax group – The day before the effective date of joining the group
  • Leaving a tax group – The day before the effective date of leaving the group

 

Article 55(6):

• Clarifies that standard apportionment applies to government entities and charities (with reference to Article 57 of the Decree-Law).

Article 55(7)(a):

• Adjusts language to refer to “sum of input tax for the tax period”.

Article 55(12):

• Clarifies that the AED 250,000 threshold for actual use adjustment is prorated if the tax year is < 12 months.
  • E.g., Joining a tax group after 5 months → threshold = AED 104,167 (i.e., 250,000 x 5/12)

Article 55(13):

• FTA authority to:
  • Require use of specific apportionment methods based on business type (e.g., financial institutions with multiple sectors).
  • Approve use of specified recovery percentage based on previous year’s recovery rate (standard or special method).

Specified Recovery Percentage – Key Points:

• Available from 15 Nov 2024
• Must have completed at least 1 full tax year.
• Approval is valid for 4 years.
• Cannot change method for 2 years after approval.

Calculation Basis:

• If using FTA-approved special method → based on prior year’s rate using that method.
• If not using the special method but eligible → apply to use rate from that method.
• If special method not applicable → use prior year’s standard method rate.

Article 55 – Apportionment of Input Tax

Amendments to Article 55 of the Executive Regulation introduce clarifications regarding the end of a tax year, the applicability of apportionment rules, and the use of a specified recovery percentage. These updates also grant the FTA enhanced authority to mandate appropriate apportionment methods for businesses.

Clause 4: Special Cases Ending the Tax Year

A new Clause 4 specifies situations that trigger the end of a tax year:

1. Tax Deregistration – The tax year ends on the last day the person was a taxable person.
2. Joining a Tax Group – The tax year ends the day before the effective date of joining the group.
3. Leaving a Tax Group – The tax year ends the day before the effective date of leaving the group.

Clause 6: Apportionment Rules for Government and Charities

Previously Clause 5, now Clause 6 explicitly states that standard input tax apportionment methodology applies to:

• Government Entities and Charities, as defined under Article 1 of the Decree-Law.
• It includes a reference to Article 57 of the Decree-Law.

Although wording in Clause 7(a) refers to “sum of input tax for the tax period,” the simplified calculation method in the VAT Input Tax Apportionment Guide (VATGIT1) remains valid.

Clause 12: Prorating the AED 250,000 Threshold

Clarifies that the AED 250,000 threshold used to determine if an actual use adjustment is required should be pro-rated if the tax year is shorter than 12 months.

• Example: If a person joins a tax group five months into the year, the threshold becomes AED 104,166.67 (i.e., 250,000 × 5/12).

Clause 13: FTA Authority to Mandate Method

The FTA may require a specific apportionment method based on:

• The registrant’s business activities and transaction types.
• Example: A financial institution engaged in real estate, retail banking, and investment services may be required to use the sectoral apportionment method.

Specified Recovery Percentage (Effective 15 November 2024)

Registrants may apply to use a specified recovery percentage, determined based on the preceding tax year’s recovery rate.

To be eligible:

• The registrant must be VAT-registered for at least 1 full tax year.
• FTA approval is valid for 4 years; no change in method allowed for 2 years post-approval.

Determination Basis:

1. Special Method Approved – Use prior year’s recovery rate under the approved special method.
2. Special Method Applicable but Not Used – Apply using the special method basis even if not yet used.
3. No Special Method Applicable – Use prior year’s standard method recovery rate.

Article 58 – Capital Assets Scheme

A new Clause 17 has been added to clarify timing for capital asset use in apportionment:

Clause 17: Internally Developed Capital Assets

For capital assets developed internally, the first tax year begins when the asset is brought into use, not when it was merely ready for use.

Article 59 – Tax Invoices

The amendments to Article 59 introduce terminology refinements, clarify invoice issuance rules, and provide guidance on exceptions and documentation.

General Terminology Update

The term “taxable person” has been replaced with “registrant”, as only registrants possess a TRN and are eligible to issue tax invoices.

Clause 2(e): AED Requirement for Simplified Invoices

The total consideration and VAT amount on a simplified tax invoice must be shown in AED.

Clause 5: Reverse Charge Scenarios

Simplified tax invoices are not allowed where the reverse charge mechanism under Article 48 of the Decree-Law applies.

• A full tax invoice must be issued by the recipient of the service, unless an administrative exception is granted.

Clause 7: Administrative Exceptions for Issuing Invoices

The FTA may grant exemptions from the requirement to issue tax invoices, subject to specific conditions.

Clause 11: Documentation for Agent-Principle Supplies

Where a registered agent issues tax invoices for supplies on behalf of a principal, the following must be maintained:

• Agent: Name, address, and TRN of the principal.
• Principal: Name, address, and TRN of the agent.

Invoice Issuance Deadlines

• Standard tax invoices: Within 14 days from the date of supply (Article 25/26).
• Simplified tax invoices: Must be issued on the date of supply.
• Summary tax invoices: Must be issued within 14 days from the end of the calendar month during which the supply occurred (Clause 13).

Clause 14: Withdrawal of Administrative Exceptions

The FTA may withdraw administrative exceptions related to tax invoices if the original conditions for granting the exception are no longer met.

Clause 15: Mandatory Full Invoice in Certain Cases

FTA may mandate the issuance of full tax invoices in specific scenarios, even where simplified invoice conditions are otherwise satisfied.

Article 60 – Tax Credit Notes

Amendments to Article 60 of the Executive Regulation clarify the treatment of multiple credit notes, introduce administrative exceptions, and impose documentation requirements for agents acting on behalf of principals.

Clause 1(e): Multiple Credit Notes

When multiple credit notes are issued in respect of the same tax invoice, the value of supply shown in the subsequent credit note must reflect the adjusted value after considering any previous credit notes.

• Example:
  • Original tax invoice: AED 105 (incl. VAT)
  • First credit note: AED 21 (incl. VAT)
  • New value of supply: AED 84
  • If a second credit note is issued, it must be based on this adjusted value.

Clause 2: Administrative Exceptions

The FTA may grant exceptions that allow registrants to not deliver tax credit notes, subject to conditions deemed necessary by the FTA.

Clause 6: Agent and Principal Record-Keeping

Where a registered agent issues a tax credit note on behalf of a principal, both parties must retain specific documentation:

• Agent: Must retain name, address, and TRN of the principal.
• Principal: Must retain name, address, and TRN of the agent.

Article 64 – Tax Return and Payment

Amendments to Article 64 clarify the net VAT position that can arise in a tax period, whether payable to the FTA or refundable to the registrant.

Clause 5(j): Reference to Excess Tax

The term “excess tax” has been added alongside “payable tax” to cover both possible outcomes of a VAT return:

• Payable Tax: Net amount owed to the FTA.
• Excess Tax: Where recoverable tax (Box 13) exceeds due tax (Box 12) in the return, resulting in a refund position.

Article 68 – Tourist Visitors

Amendments to Article 68 standardize the time limits for exports by overseas tourists.

Clause 2(c): Export Deadline Alignment

The period for overseas tourists to export goods has been changed from “within 3 months” to within 90 days from the date of supply, aligning it with Paragraph (b).

Article 69 – Foreign Governments and International Bodies

Article 69 has been restructured and renumbered for clarity and consistency, maintaining prior eligibility conditions with an added deadline for claims.

Key Updates:

• Sets out detailed conditions under which foreign governments, international organizations, diplomatic bodies, and their officials may claim VAT refunds.
• Introduces a 36-month time limit for submitting claims, unless a different period is specified in an applicable international treaty or agreement effective in the UAE.

Conclusion

The amendments introduced through Cabinet Decision No. 100 of 2024 mark a significant evolution in the UAE’s VAT framework, enhancing legal clarity, reducing administrative burdens, and aligning with global best practices. By introducing precise definitions—particularly in emerging sectors like virtual assets—and refining rules around registration, zero-rating, composite supplies, and government transactions, the new Executive Regulation reflects a proactive and pragmatic approach by the Federal Tax Authority.

Businesses and stakeholders must now recalibrate their compliance mechanisms to reflect these changes, especially considering the retroactive provisions and the FTA’s expanded authority in deregistration and document assessment. These updates also underscore the UAE’s commitment to fostering a robust, transparent, and future-ready tax environment that supports innovation while ensuring fiscal integrity. As always, proactive adaptation and professional guidance remain essential to successfully navigating this new regulatory landscape.