UAE Amends VAT Executive Regulations, Effective November 15

The United Arab Emirates (UAE) has made substantial changes to its Value Added Tax (VAT) Executive Regulations, effective from November 15, 2024. These amendments, published in the Official Gazette on September 16, 2024, carry broad implications for businesses across various sectors, especially trade and financial services. We provide an overview of key changes to UAE VAT Law and the necessary steps businesses should take to comply with the new regulations.

Key changes

1. Financial services and virtual assets: One of the major changes is the VAT exemption for financial services, particularly fund management and virtual assets. Fund management services provided independently to licensed investment funds are now exempt from VAT. Additionally, virtual asset transactions, including those involving digital currencies, enjoy VAT exemptions, with some provisions retroactively applied to January 1, 2018. This may lead to complex input VAT recovery processes for fund managers, necessitating careful assessment of past filings.

1. Zero-rating for goods exports: Amendments to the documentation requirements for applying zero rates to goods exports offer businesses more flexibility. Exporters can now provide customs declarations, bills of lading, or customs suspension documents to meet these requirements. This change addresses challenges faced by businesses in obtaining necessary evidence, simplifying the process.
2. Service and transportation zero rates: New limitations have been introduced to the zero rates on service exports. Certain services—such as real estate, transportation, and catering—are now excluded from zero-rating. Additionally, the VAT treatment of international transportation services has been clarified, stating that domestic transport legs are zero-rated only if provided by the international transporter.
3. Input VAT recovery on health insurance: Businesses can now recover input VAT on health insurance expenses for employees’ spouses and children under 18, even if not mandated by local laws. This change simplifies the administrative burden on businesses, ensuring consistent VAT treatment across different Emirates.
4. Government transactions and deemed supplies: The amendments exclude certain transactions between government entities from VAT, including the transfer or disposal of government real estate and buildings. Furthermore, the threshold for deemed supplies between government entities or charities has been raised, reducing their VAT compliance burden.

UAE VAT Law amendments

The recent updates to the UAE’s VAT Executive Regulations, detailed in the Federal Tax Authority’s consolidated version of the Federal Decree-Law No. 8 of 2017, bring further clarity and expand the scope of the UAE’s tax framework.

These revisions, enacted through Cabinet Decision No. 100 of 2024, have introduced several key changes that impact businesses across sectors.

Some of the major implications are highlighted below.

Expanded definition and VAT exemptions for virtual assets

A notable amendment is the introduction of a comprehensive definition of virtual assets. Under the new VAT rules, virtual assets are defined as “Digital representation of value that can be digitally traded or converted and can be used for investment purposes, and does not include digital representations of fiat currencies or financial securities.” This clarification brings regulatory certainty to businesses dealing with virtual currencies and other digital assets, a rapidly growing sector in the UAE. Additionally, a significant retrospective VAT exemption has been applied to the transfer of ownership and conversion of virtual assets. This exemption, effective from January 1, 2018, allows businesses to reassess their tax positions and amend past filings if necessary. This retroactive adjustment could alleviate compliance burdens for companies involved in virtual asset trading over the past several years.

Documentary requirements for zero-rating on exports

The VAT law updates also address complexities related to the VAT zero-rate applicable to the export of goods and services. To qualify for the zero rate, businesses are now provided with more flexibility in the documentation required, reflecting the diverse export processes and challenges faced by different industries. This will simplify compliance for exporters and reduce the risk of VAT misapplication.

Additional changes in VAT compliance

The amendments also touch on a range of VAT compliance issues, including the tax treatment of mixed supplies, streamlined procedures for VAT registration and deregistration, and updated refund rules. These changes are designed to reduce the administrative burden on businesses and ensure smoother VAT compliance across the board.

Broader implications

The changes to UAE VAT law affect all industries, but particularly those in financial services, export, and transportation sectors. Businesses must take immediate steps to assess the impact, update their VAT compliance processes, and ensure they meet the new requirements by the November promulgation.

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