Major Changes in UAE VAT Regulations: Key Takeaways

The UAE FTA has amended VAT regulations under Cabinet Decision No. 99 of 2024, impacting financial services, real estate, exports, and input VAT recovery. Businesses must update compliance frameworks to align with new classifications, exemptions, and documentation requirements.

By Sudhanshu Singh

The United Arab Emirates (UAE) Federal Tax Authority (FTA) has introduced amendments to the Value Added Tax (VAT) Executive Regulations under Cabinet Decision No. 99 of 2024, altering VAT compliance requirements. Building upon the amendment effective from November 15, 2024, these changes impact businesses across sectors including financial services, real estate, government entities, and international trade.

The amendments primarily address article 3 bis (exceptions to supply), article 42 (financial services VAT exemptions), article 30 and 31 (zero-rating for exports), article 5 (deemed supplies), and article 53 (input VAT recovery). Businesses must align their VAT compliance frameworks with these revised regulations to avoid non-compliance risks and ensure proper tax treatment of transactions.

Major amendments to UAE VAT regulations

Amendments to Article 3 bis – Supply of goods and exceptions

The revised regulations redefine the supply of goods, particularly in real estate, government transactions, and utility services. The changes confirm that ownership transfers, compulsory transfers with consideration, and infrastructure projects are taxable under VAT. In addition to this, utility supplies such as electricity, water, and gas are explicitly classified as goods rather than services.

A critical exception introduced under Article 3 bis states that real estate transfers involving government entities will not be considered taxable supplies. This reduces VAT liabilities for public infrastructure projects, requiring private contractors to reassess tax implications on government contracts.

Article 42 – VAT exemptions for financial services

Under the revised Article 42, VAT exemptions now extend to regulated investment funds and virtual assets. This includes the transfer, conversion, and management of digital assets, such as cryptocurrency transactions, which will now be VAT-exempt retroactively from January 1, 2018.

For fund managers, these exemptions reduce VAT compliance costs but also restrict input VAT recovery on associated business expenses. As a result, firms engaged in fund administration, investment advisory, and digital asset management must reassess their VAT apportionment methods to avoid financial discrepancies.

Article 30 and 31 – Zero-rated export of goods and services

The amendments refine zero-rating conditions for exports, particularly for service-based transactions. The revised Article 30 and Article 31 mandate stricter documentation for businesses claiming zero-rated exports of goods and services. To qualify for zero VAT, exporters must retain:

• Official customs declarations;
• Shipping documents as proof of export; and
• Evidence of customs duty suspension status.

For services, zero-rating is only applicable when the recipient is outside the UAE, and no UAE place of supply rules apply. The amendments introduce new restrictions on zero-rating for real estate, transportation, and hospitality services, requiring firms to reassess their VAT exposure on cross-border service agreements.

Article 5 – Deemed supply rules

Changes to Article 5 introduce new thresholds for deemed supplies, affecting output tax obligations. A supply will not be deemed taxable if:

• The value of goods transferred is below AED 500 (US$136 ) in a 12-month period;
• Total annual deemed supply output tax per supplier does not exceed AED 2,000 (US$544.6); and
• Government entities and charities are exempt if their deemed supplies remain under AED 250,000 (US$68,071) annually.

These limits reduce administrative burdens on businesses with low-value deemed supplies, ensuring compliance with VAT reporting obligations.

Article 53 – Input VAT recovery on employee benefits

Under Article 53(1)(c)(3), businesses can recover input VAT on employee health insurance expenses for one spouse and up to three children, even when not legally required under UAE labor laws. This amendment aligns with employer-provided benefits in sectors such as healthcare, aviation, and expatriate-heavy industries, reducing irrecoverable VAT costs.

Industries impacted by the amendment

Financial services sector

The fund management exemption alters VAT treatment for investment and asset management firms, requiring reassessment of input VAT deductions. Virtual asset exemptions will impact fintech and crypto exchanges, necessitating retrospective VAT compliance reviews to ensure proper classification of transactions.

Real estate and government transactions

Government-owned real estate projects and infrastructure developments now fall under VAT-exempt transactions. While government-linked entities benefit from reduced VAT costs, private sector contractors must adjust VAT recovery calculations accordingly.

International trade and export businesses

Businesses involved in cross-border transactions must adapt to stricter documentation requirements for export zero-rating. The restrictions on services linked to UAE-based assets affect consulting, transportation, and leasing firms, requiring them to reassess VAT applicability on international service agreements.

Additional amendments

The VAT amendments introduce changes across multiple articles that affect compliance requirements for businesses:

• Article 1: Expands the definition of Virtual Assets and Notification, making notification requirements applicable to all persons, not just tax agents or legal representatives;
• Article 2: Defines real estate supply to include any form of disposal that transfers ownership, beyond sale and tenancy contracts;
• Article 8: Clarifies that businesses may only register voluntarily if they provide evidence to the FTA that they conduct business in the UAE or intend to make taxable supplies, including cross-border supplies that would be taxable if made in the UAE;
• Articles 14, 14 bis, 15, and 16: Introduce specific amendments regarding tax deregistration procedures;
• Article 38: Removes the definition of relevant charitable activity;
• Article 55: Allows taxpayers to apply to the FTA for approval of a specified recovery percentage to calculate recoverable input VAT based on the previous tax year’s percentage;
• Article 59(5): States that a simplified tax invoice cannot be issued when the reverse charge mechanism applies; and
• Article 60: Allows a registered agent to issue a credit note on behalf of a principal, provided they maintain records with the principal’s name, address, and tax registration number.

Compliance strategies for businesses

To comply with the UAE VAT regulation amendments, businesses should:

• Re-evaluate contracts and invoicing structures to align with revised VAT classifications;
• Enhance documentation for zero-rated transactions, ensuring customs compliance;
• Recalculate input VAT recovery eligibility, particularly for financial services and employee benefits;
• Implement VAT software updates reflecting new deemed supply thresholds; and
• Seek professional tax advisory services to assess amendment impact on sector-specific operations.

By proactively adjusting to these regulatory changes, businesses can ensure compliance, reduce VAT risks, and optimize tax efficiencies under the updated UAE VAT framework.

More about the UAE’s tax system:

• UAE Federal Tax Authority Releases Guide on Corporate Tax (CT) Return: Key Obligations
• UAE Top-Up Tax for Multinational Enterprises: An Explainer

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