The UAE Announces New VAT laws - How is this Going to Affect you?

If you have a residence or business in the United Arab Emirates, you would have heard some discussions about changes in Value Added Tax (VAT) laws. It has become a topic of discussion. The introduction of 5% VAT in 2018 was a major shift to diversify government revenue streams away from oil dependency. Now, the recent amendments aim to fine-tune the system further. But what are the amendments, and what do they mean for you? Well, in this blog, let's learn about it.

The New Amended VAT Laws

Federal Tax Authority (FTA) has recently amended the Executive Regulation of Federal Decree-Law No. 8 of 2017 on Value Added Tax. These amendments came into effect in the UAE on 15th November 2024. Here are the key amendments.

Article 30 - Export of goods

The rules for applying the zero rate of VAT on exported goods are now simpler. Exporters only need to keep one of the following:

• A customs declaration and commercial documents that show the goods were exported.
• A shipping certificate and official documents that confirm the export.
• A customs declaration that proves the goods are under a customs suspension arrangement, meaning no customs duties are charged.

Article 31 - Export of services

A new rule has been introduced for applying the zero rate of VAT on exported services. The rule says that the services should not be regarded as provided within the UAE or in a designated area. These rules apply to real estate, electronic, and telecommunication services. As a result, if the services are connected to the UAE, such as being linked to property located there or being used within the country, they will now be subject to the standard VAT rate instead of the zero rate.

Article 42 - Tax treatment of financial services

No VAT applies to managing investment funds and transferring or converting virtual assets such as cryptocurrencies. Fund managers should be able to assess whether their services are exempt from VAT and the effect of this on their expenditures. Similarly, businesses dealing in virtual assets should look into how this exemption affects the VAT situation and whether they need to correct past VAT returns.

Other Ammendmants in VAT Law

Some other amendments in VAT laws are:

• The definitions of "Virtual Assets" and "Notification" have been updated, with "Notification" now applying to all people, not just concerned persons, tax agents, or legal representatives.
• Real estate supply now includes sales and tenancy contracts and any transfer of ownership.
• Transfers of ownership or rights for government buildings between government entities are not considered a supply.
• If the total value of goods supplied (including samples or gifts) to a recipient doesn't exceed AED 500 within 12 months, it is not considered a deemed supply.
• For government entities or charities, the threshold for not triggering a deemed supply is AED 250,000 within 12 months.
• Businesses can voluntarily register for VAT if they are carrying out business in the UAE or plan to make taxable supplies, including those outside the UAE that would be taxable or exempt if made inside.
• Changes have been made to tax deregistration procedures.
• The definition of "relevant charitable activity" has been removed.
• Input tax on health insurance (including enhanced coverage) provided to employees and their dependents (up to one spouse and three children) free of charge is recoverable.
• Taxpayers can apply a specific recovery percentage to calculate recoverable input tax based on the previous tax year.
• Simplified tax invoices cannot be issued if the reverse charge mechanism applies.
• Agents who are VAT registrants can issue credit notes on behalf of their principals as long as they keep records that identify the principal's name, address, and tax registration number.

The Impact of VAT Amendments

As a resident of the UAE, the recent changes to VAT laws may affect you in a few ways. If you run a business, the new export rules could make it easier to claim VAT on goods you send out of the country. If you are involved in services like real estate or telecommunications, you must pay VAT on some previously exempt services. The new VAT exemptions could lower costs for businesses working with virtual assets. If your employer provides health insurance, you might be able to recover some of the VAT on that coverage. Changes in VAT registration rules could impact how your business handles tax registration, especially if you work with government organisations or charities.

Conclusion

The UAE's VAT changes for 2024 bring important updates that businesses need to understand. With new VAT exemptions and clearer rules for zero-rate VAT, these changes aim to simplify tax processes. However, businesses must stay on top of the latest VAT rules in Dubai to avoid penalties. Companies should update their accounting systems, train staff, and seek professional advice. It is a good idea for residents to stay informed about these changes, especially if they are involved in business or receiving benefits like health insurance. It will ensure residents are not caught off guard by new VAT-related costs.

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