His Highness Sheikh Khalifa Bin Zayed Al Nahyan, President of the United Arab Emirates has issued the Federal Decree-Law No. 18 of 2022 on the Amendment of Some Provisions of the Federal Decree-Law No. 8 of 2017 on Value-Added Tax (VAT) effect on 1 January 2023 (Amended law). In accordance with the new law, many provisions have been amended.

The following Articles of the Decree-Law have been amended:

Article 1, Article 5, Article 7, Article 13, Article 15, Article 21, Article 26, Article 27, Article 30, Article 33, Article 36, Article 45, Article 46, Article 48, Article 55, Article 57, Article 61, Article 62, Article 65, Article 67, Article 74, Article 76, Article 77, Article 80, Article 83, and added a new article 79.

In this article, we Crevaty intend to inform our clients and readers of the main amendments only. We think all the UAE businesses need to review their existing business processes to identify any gaps between the current VAT compliance practices compared to the new VAT amendments to be effective from 01 of January 2023.

We note below, some of the key amendments that we think is important to UAE businesses;

Amendment and Respective Article [Federal Decree-Law No. 18 of 2022]

1. Exception from registration for persons already registered for VAT – 15
2. Deregistration initiated by the FTA – 21                                                                                    
3. Place of supply of goods when the date of supply as per the Article 26(1) – 27
4. Clarifying the place of residence of a principal – 33
5. Value of supply and deemed supply between related parties – 36
6. Specifying the period within which tax credit notes must be issued – 62
7. Issuance of tax invoices – 67
8. Statute of Limitation – 79
9. Definition – 1

Exception from registration for persons already registered for VAT (Article 15)

A person who is not registered for VAT and the business consists only zero-rated supplies, under the current law such person can apply for an exception for VAT registration, however a registered person who supplies solely zero-rated supplies could not avail this exception. To address issue, the amended article provides that, existing registrants who only make zero-rated supplies may also apply to be exempted from registration with effect from 1 January 2023. Once the registrant’s request for an exception from registration is accepted, the person will be deregistered if all the requirements are met, and all due tax and administrative penalties have been settled.

The new amendment has provided UAE businesses an opportunity to re-evaluate their position if they are only providing zero rated supplies. As an example, where a company in the UAE ceases to carry out local operation and carries on with export sales such companies are now given the opportunity get themselves deregistered from the VAT system.

Deregistration initiated by the FTA (Article 21)

Before the amendment, deregistration could only be initiated at the request of the registrant, but the registrant fails to apply for deregistration due to various circumstances. For example, tax evasion or intentionally holding the registration without any output tax. Effective from 1 January 2023, if the Authority finds that the continuity of such Tax Registration may prejudice the integrity of the Tax system, the FTA may initiate tax deregistration procedures as per the amended Article 21 and issue a Tax deregistration decision. It shall be noted here that the registrant also remains liable to apply for deregistration as specified in the legislation. Administrative penalties can otherwise be imposed in case of non-compliance.

Place of supply of goods when the date of supply is determined under Article 26(1) of the Decree-Law (Article 27)

The Decree-Law has been amended to confirm that the place of supply of goods supplied under any contract that includes periodic payments or consecutive invoices, shall be the UAE if the ownership of the goods is transferred in the UAE at any time under the execution of the contract.

Clarifying the place of residence of a principal (Article 33)

It is clearly identified that the agent’s activities in the UAE will result in the principal having a place of residence in the UAE:

• If the agent’s place of residence is in the UAE and the agent regularly negotiates and enters into agreements in favour of the principal.
• If the agent regularly maintains a stock of goods to fulfil supply arrangements for the principal

After the amendment has taken place, the deemed place of residence in the UAE for the principal through its agent will result in the principal having to comply with all tax obligations mentioned in the tax legislation.

With this amendment, the principle who is conducting business with the agents need evaluate their VAT compliance and need to revisit the business operation arrangement in the UAE to comply with the amended law.

Value of supply and deemed supply between related parties (Article 36)

The amendment to Article 36 of the Decree-Law explains that where the provisions of Articles 36 and 37 of the Decree-Law apply, then Article 36 supersedes, and the value of the supply will be the market value.

Article 36

As an exception to Articles 34, 35, and 37 of this Decree-Law, Value of supply between Related Parties shall be considered equal to the market value if all of the following conditions are met:

1. The value of the supply is less than the market value.
2. If the supply is a Taxable Supply and the Recipient of Goods or Services does not have the right to recover the full Tax that would have been charged on such supply as Input Tax.

Article 37

As an exception to Articles 34 and 35 of this Decree-Law, the value of the supply in the case of a Deemed Supply when the Taxable Person purchases Goods or Services to make Taxable Supplies but does not use those Goods or Services for that purpose, value of the deemed supply will be equal to the total cost incurred by the Taxable Person to make this Deemed Supply of Goods or Services.

As per the amendment, for example one transaction occurred between related parties and met the two conditions of Article 37 and also same time satisfy Article 37 as well, Then the company need to ignore the Article 36 (cost price) and apply market value for the transaction as per the Article 37.

Specifying the period within which tax credit notes must be issued (Article 62)

The amendment to the Decree-Law specifies the period within which tax credit notes must be issued. If output tax must be reduced after the date of supply, as a result of an error, cancellation, price alterations or goods return (listed in Article 61 of the Decree-Law), the registrant must issue a tax credit note within 14 calendar days from the date of the occurrence of the mentioned instance.

UAE businesses may advice the relevant officers to follow the timeline that is set in the revised law to avoid any noncompliance.

Issuance of tax invoices (Article 67)

The amendment law to the Decree Law clarifies the period within which tax invoices must be issued. A registrant must issue a tax invoice within 14ُ calendar days from the date of supply. This date of supply is any of the dates as outlined in Articles 25 or 26 of the Decree-Law as the case may be.

UAE businesses may advice the relevant officers to follow the timeline that is set in the revised law to avoid any noncompliance.

Statute of Limitation (Article 79) 

The provision set in the amended article introduced to the Decree-Law, sets the maximum timeframe in which the FTA can conduct a tax audit or issue a tax assessment. Generally, the FTA may not conduct a tax audit or issue a tax assessment to a taxable person after the expiration of 5 years from the end of the relevant tax period.

As an example, the tax period from July 2022 to September 2022, with the related tax return to be filed no later than 28 October 2022, generally cannot be subject to a tax audit or the issuance of a tax assessment after 30 September 2027.

With this new article FTA has introduced an extended scope and time to exercise the compliance reviewing under special circumstances. With this change, the FTA may conduct a tax audit or issue a tax assessment to a taxable person after 5 years from the end of the relevant tax period in the following instances:

• The FTA notifies a taxable person of the tax audit before the expiry of the 5year period, provided that the tax audit is completed, or the tax assessment is issued within 4 years from the date of the notification of the tax audit. For example, if the FTA notified the taxable person on 23 December 2022 that it will audit the tax periods of 2018, this tax audit must be completed, or the relevant tax assessment must be issued before 23 December 2026.

• A person submits a voluntary disclosure in the fifth year from the end of a tax period, provided that the tax audit is completed, or the tax assessment is issued, within one year from the date of submission of the voluntary disclosure. It must be noted that the registrant cannot submit a voluntary disclosure after 5 years from the end of the relevant tax period.

• In the case of tax evasion, the FTA may conduct a tax audit or issue a tax assessment within 15 years from the end of the tax period in which the tax evasion occurred. Tax Evasion can happen by the reduction of the amount of the due tax, non-payment of tax or a refund of tax that the Person did not have the right to have refunded. For example: A taxable person was required to register for VAT – under the provisions of Article 13 of the Decree-Law – from 1 July 2019. An application for registration was, however, submitted effective from 1 January 2021. For the period from 1 July 2019 to 31 December 2020, the FTA may conduct a tax audit to be completed before 1 July 2034 or issue a tax assessment before that date.

In the UAE VAT was introduced in the year 2018 January and most of the businesses have registered to comply with VAT from 2018. As of now initial VAT returns in the year 2018 will expire with the 5-year time bar since now we are at the end of year 2022. The businesses who received notices already for the year 2018, the FTA will have sufficient time to conclude any concerns in the coming years. After the year 2022, the business which can reasonably assume that they have covered the time bar for the year 2018 VAT returns except for cases which are connected to any tax evasion related issues.

New definitions (Article 1)

The amended law consists of new definitions which were introduced to align with the definitions provided in the Tax Procedures Law. This includes following and you may refer to the Law if you wish you may go through this in detail by clicking the links below.

Tax evasion

Tax audit

Tax assessment

Voluntary disclosure

Pure hydrocarbons

Relevant charitable activity

Links

Amended full Law – Click here 

VAT public clarification from FTA (VATP030) – Click here 

How does Crevaty assist you?

As an experienced tax team in the UAE, with new and revised tax laws we can assist clients with industry competence to do a gap analysis to identify areas that need to be improved.

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