UAE VAT Law Amendments- How will Impact for Businesses
Pursuant to Federal Decree-Law No.18 2022 (new Decree-Law), the UAE has now announced UAE VAT Law amendments. 2017 on Value Added Tax (VAT Decree-Law), making this the most significant amendment to the VAT legislation to date. The amendments will take effect from 1 January 2023. The amendments have streamlined certain provisions and removed ambiguity on certain interpretations under UAE VAT Law. The major changes to the existing VAT rule are as follows:
14-Day Period to Issue a Tax Credit NoteThe supplier needs to issue a tax credit note to the buyer/recipient and the buyer/recipient is obliged to reverse the proportionate input tax credit recovered on the original invoice. Under Article 62(2), a Tax Credit Note must be issued within a 14-day. If the taxpayer intends to adjust the output tax, in line with the time frame set for issuing tax invoices.
- Cancelled supplies
- Changes of the supply that led to a change in VAT treatment
- Changes to the consideration of the supply agreement
- Goods and services returned by the recipient and refunded by the supplier
- VAT treatment was misused and charged in error
Tax AuditsThe VAT Amendment Law inserts a new Article 79 bis into the VAT Law. Some of the most important changes in the VAT Amendment Law relate to the time period. The Federal Tax Authority (FTA) to raise a tax audit or issue a tax assessment.
- The FTA can undertake a tax audit or issue a tax assessment more than five-year period. It can be increased to 15 years in the case of tax evasion or where a taxpayer fails to register for VAT. If they notify the taxpayer of a tax audit before the end of the five-year period. It could be complete the audit or issue a tax assessment within four years from the date they notified the taxpayer of the tax audit.
- The 15-year period for non-registration or tax evasion still applies. Tax evasion is defined in the VAT Amendment Law as using illegal means to reduce the amount of VAT due. There are non-payment of VAT, or claiming a VAT refund to which the taxpayer does not have the right.
- There are also changes to increase the time period for the FTA to raise a tax audit when a voluntary disclosure is made. A voluntary disclosure is made by a taxable person. It is notify the FTA of an error or omission in their tax return, tax assessment, or tax refund application.
New Zero Rate SuppliersArticle 45 of the new UAE VAT Law has introduced additional goods that are subject to zero-rate of VAT. This includes “Supply or Import of air, sea and land means of transport for the transportation of passengers and Goods. It is follow as per the criteria and conditions specified in the Executive Regulation of this Decree-Law (Article 4). Supply of Goods or Services, or Import of Concerned Goods, related to the supply of the means of transport mentioned in Clause 4 of this Article. Which are designated for the operation, repair, maintenance or conversion of these means of transport (Article 5). Supply or import of air or sea rescue and assistance aircraft or vessels (Article 5)”.
Invoices for the Import of GoodsUAE VAT Law Amendments highlighted that the taxpayers would need to receive and retain invoices for any import of service on which reverse charge is applicable. The obligation to receive and retain invoices and import documents will equally apply for the import of goods. It appears that some taxpayers do not verify the correctness of the import VAT payable under reverse charge. It is automatically appears in their VAT returns and recovers input credit of the complete amount without verification. The FTA wants a taxpayer to ensure that the credit is recovered only for the verified imports undertaken by the taxpayer.
Place of Residence of a PrincipalUnder Article 33, the place of residence of a principal is redefined as the place of residence of the agent. This is different from the current VAT Law. The amendment Law states that the place of residence of the agent shall be the place of residence of the principal. As per Article 33: “The Place of Residence of the principal shall be considered as being the Place of Residence of the agent in any of the following cases:
- If the agent regularly exercises the right of negotiation and enters into agreements in favour of the principal.
- If the agent maintains a stock of Goods to fulfil supply agreements for the principal regularly.”