In 2018, the United Arab Emirates (UAE) made revisions to its Value Added Tax (VAT) regulations, coinciding with a worldwide trend of increasing VAT usage. This shift has impacted the purchase of VAT-taxable goods and services within the country, making it crucial for businesses to stay current with the updated VAT rules in 2023.
The UAE introduced 2023 VAT rules to improve tax practices, ensure compliance, and prevent penalties. The UAE has incorporated these adjustments into the VAT Decree-Law, directly affecting businesses operating in the country. Consequently, businesses in the UAE must continually adhere to any new VAT regulations that may emerge.
VAT, or Value Added Tax, applies as an indirect tax on the total value of goods and services consumed. Many countries use it, and it covers most goods and services transactions. VAT is a key government revenue source funding infrastructure, education, healthcare, and essential public services.
The UAE introduced three new VAT regulations in 2023, implemented across January, February, March, and June.
In January 2023
VAT rules concerning the Statute of Limitations and related matters were enacted. The rules permit VAT exemptions, allow VAT recovery on imports, and define timelines for issuing tax credit notes.
In January 2023, the UAE implemented new VAT rules, which were announced in October 2022. These rules introduced several key changes:
VAT Registration Exception
Registered individuals can request a VAT registration exemption if all their supplies qualify as zero-rated.
VAT Recovery on Imports
Taxable individuals may recover VAT on imports incurred before registration, subject to specific conditions.
Tax Credit Note
Businesses must issue a Tax Credit Note within 14 days to adjust output tax, following the same timelines as tax invoices.
Payment of VAT
Taxable persons must pay VAT to the FTA when issuing a tax invoice or receiving an amount as VAT.
Continuous Supply
The date of issuance of a tax invoice for continuous supply will be 14 days from the date of the supply.
Place of Residence
The place of residence of a principal is now defined as the place of residence of the agent.
FTA Authority
The FTA has the authority to forcibly deregister registered persons in specific cases, without forfeiting the FTA’s right to claim tax dues or administrative penalties.
In February 2023
The Federal Tax Authority (FTA) introduced comprehensive regulations related to new reporting requirements for UAE resident taxpayers. This requirement applies to businesses with annual sales exceeding AED 100 million and aims to track sales by emirate.
In March 2023
Saw an update on voluntary disclosure of VAT errors, removing the threshold for disclosure and introducing fixed fines for errors, potentially resulting in penalties higher than the actual tax liability.
Additionally, the UAE released guidelines on VAT input apportionment techniques in March, offering alternative methods for businesses where standard approaches do not yield equitable outcomes.
In June 2023
The FTA introduced tax clarifications, official documents that provide guidance on specific transactions based on information provided by applicants, without setting a precedent for others.
Key takeaways
Key takeaways from the 2023 VAT rules in the UAE include extended time frames for tax audits, additional audit opportunities following voluntary disclosures, measures against tax evasion, the authority to audit non-registered entities, exemptions for 100% exporters, enhanced compliance for input credit on imported services, rules concerning construction sector payments, and considerations related to deemed supplies to related parties.
These changes reflect a global trend of adapting tax laws to evolving economic conditions and demonstrate the commitment of tax authorities to addressing taxpayer concerns. Businesses operating in the UAE should assess the implications of these amendments and adjust their practices to ensure compliance. Further adjustments to executive regulations are anticipated in the near future.
KLOUDAC Accounting Firm Dubai, UAE
The UAE’s VAT procedures have evolved in response to changing economic conditions and global tax standards. The 2023 changes, including the increase in the VAT rate, mandatory e-invoicing, stricter registration requirements, and the reverse charge mechanism for imports, are all part of the government’s efforts to ensure a fair and efficient tax system. KLOUDAC is a reputed accounting firm that provides full guidance on VAT procedures.