INSITE - UAE - Oct 2024
- sukhwinder21
- Nov 5, 2024
- 5 min read
AMENDMENTS TO VAT EXECUTIVE REGULATIONS
Summary: The United Arab Emirates (UAE) recently updated its Executive Regulation of the Federal Decree-Law No. 8 of 2017 on Value Added Tax (VAT) Cabinet Decision No. 52 of 2017 – Issued 26 Nov 2017 (VAT Executive Regulations) through Cabinet Decision No. 100 of 2024. Most of these changes will take effect on November 15, 2024, with some applying retrospectively. These amendments focus on reducing administrative work, clarifying complex areas and harmonizing VAT treatment, especially in financial services and exports. Businesses are advised to review their VAT responsibilities to comply with these new rules.
In Detail: The UAE officially enacted amendments to its VAT Executive Regulations on September 6, 2024. These changes were published in Arabic in the Official Gazette (Issue No. 783) on September 16, 2024. Below are the key takeaways:
Exemptions for Government and Charitable Transactions
A new Article 3 (bis) clarifies that certain transactions between government entities such as real estate or project transfers are not subject to VAT. Additionally, transactions between government or charitable organizations are exempt from VAT if the total deemed supply value does not exceed AED 250,000 over 12 months.
Streamlined Zero-Rating for Exported Goods
The revised Article 30 provides more flexibility and clarity for zero-rated exports by outlining specific, simplified documentation options, such as customs declarations and commercial evidence. This change addresses difficulties that exporters previously faced in proving exports, allowing businesses to meet zero-rating requirements more easily.
Refined Zero-Rating Rules for Services and Transport
Zero-rating for certain service exports, outlined in Article 31, is now more restrictive. Services connected to specific locations such as real estate, installations, or catering will no longer qualify for zero rating. Additionally, only direct domestic segments of international transport, provided by the main transport supplier, are eligible for zero-rating, addressing uncertainties around subcontracted transportation.
Input VAT Recovery on Health Insurance Costs
Updated regulations have now permitted businesses to recover VAT on health insurance for employees' spouses and up to three children under 18, even when such coverage isn’t mandated by local laws, streamlining tax recovery for businesses across the Emirates.
VAT Exemption Expansion in Financial Services
Updates to Article 42 of the UAE VAT Executive Regulations have broadened VAT exemptions to include additional financial services. Now, investment fund management services performed independently by licensed managers, such as overseeing fund operations and investments, are exempt from VAT. Similarly, virtual asset transactions including those involving cryptocurrencies are now VAT-free, with retrospective application starting from January 1, 2018. These exemptions, while simplifying compliance, may impact VAT recovery for businesses, particularly for fund managers, aligning with global practices like those in the EU.
Invoicing Requirements
The amendment to the VAT Executive Regulations introduce revised timelines and conditions for issuing tax invoices. Notably, businesses now have a 14-day window following the end of each relevant month to issue summary tax invoices. Additionally, stricter criteria have been established for invoices issued by agents acting on behalf of principals, ensuring greater clarity and accountability in such transactions. These adjustments aim to streamline invoicing practices and enhance compliance with the VAT framework.
Input VAT Calculations
Changes to the input VAT recovery rules now provide more specific guidelines for calculating entitlement, particularly in cases of partial tax years or when a business joins or exits a VAT group. The updates also include an option to apply for a fixed input tax recovery rate, which could simplify the VAT recovery process for eligible businesses. This offers greater flexibility and precision in calculating recoverable input VAT, which may reduce administrative complexity for companies.
Profit Margin Scheme
The expanded definition of “purchase price” under the profit margin scheme clarifies that it includes all costs and fees incurred in addition to the base price of goods. This means that costs such as import duties, transport fees and other related expenses are now considered part of the purchase price, broadening the scope of what can be included in the profit margin calculation. This adjustment ensures a more comprehensive approach to calculating VAT on resale items, benefiting businesses that use this scheme.
Deregistration Authority
The Federal Tax Authority (FTA) now has enhanced authority to cancel VAT registrations for entities that no longer meet the registration requirements. This change empowers the FTA to proactively manage and regulate VAT compliance by deregistering entities that fail to fulfill the necessary conditions, such as minimum revenue thresholds. It serves to maintain the integrity of the VAT system and reduce administrative burdens associated with inactive or non-compliant entities.
Businesses should review these changes to assess potential impacts, make system updates and ensure compliance.
NEW AMENDMENTS TO UAE FINANCIAL AUDIT AUTHORITY LAW
Summary: The UAE has amended the Financial Audit Authority Law No. (4) of 2018, to streamline disciplinary processes within the authority. Key changes include new investigative powers for the Director-General, the establishment of an independent central violations committee to handle compliance issues and the creation of a grievances committee to review appeals on disciplinary decisions. These updates aim to enhance accountability and improve the efficiency of addressing employee and senior official misconduct.
In Detail: The UAE recently introduced Law No. (24) of 2024, amending provisions of the Financial Audit Authority’s (FAA) founding Law No. (4) of 2018. The key amendments address the investigation of violations, disciplinary measures and the formation of a grievance committee, with the following highlights:
Enhanced Disciplinary Actions
The new Article 34 authorizes the FAA Director-General to implement several corrective actions when addressing employee misconduct, such as suspending employees, securing relevant documents, or dismissing baseless investigations. In cases of criminal behavior, referrals will go directly to the Dubai Public Prosecution. Measures like travel restrictions and asset freezes may be applied for up to three months, with possible extensions. Settlements are available if any misappropriated funds are repaid, potentially allowing for a resolution without prosecution but with disciplinary follow-ups.
Review of Penalties
Under Article 35, the Director-General can evaluate the suitability of disciplinary penalties, with a mechanism for escalating or approving penalties within seven days. For non-compliance, cases are referred to the newly established Central Violations Committee. This independent committee, comprising three appointed members, assesses penalty disputes and violations involving senior officials. Both employees and senior officials may appeal its decisions to the Grievances Committee within 15 days.
The Grievances Committee
Article 36 establishes a permanent Grievances Committee within the FAA to review employee and official grievances related to disciplinary actions. Composed of FAA-appointed members, the committee’s final decisions can only be contested through judicial recourse.
The new law, effective upon issuance, introduces a comprehensive approach to managing internal misconduct, creating a structured appeals process and enhancing accountability within the FAA. The Official Gazette will publish the law in full soon.
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