31 October 2022
Changes in Federal Decree-Law No.8 of 2017

UAE Federal Decree-Law No. 8 of 2017 on VAT (hereinafter referred to as VAT Law) was amended by the Federal Decree-Law No. 18 of 2022 and is will be effective from 1 January 2023. We have provided a detailed explanation, basis our understanding of the literal translation of the relevant amendment in the table below:
 
Article No. Heading Amendment Nexdigm Comments
1 Definition New definitions provided for:
  • Relevant Charitable Activity
  • Pure Hydrocarbons
  • Tax Evasion, Tax Audit, Tax Assessment and Voluntary Disclosure.
 The inclusion of new definitions clarifying the scope of the relevant terms and exclusions from the taxability is a welcome move. This puts to rest the undue disputes that ran around the legal terminology of the terms used and the taxation of the subjects and related litigation around what is within and what is outside the scope.
7 Supply in Special Cases In addition to the supply of vouchers and the transfer of a business, any other supply specifically provided in Implementing Regulations is also considered outside the scope of VAT.
15 Registration Exceptions Exceptions are provided to a taxable person if their supplies are only subject to a zero rate. The same shall apply to registered persons and non-registered persons. It gives a procedural relaxation to the taxpayer registered earlier due to the provision of only zero-rated supplies (irrespective of the person’s registration status).
21 Tax Deregistration Cases Basis the amendment, the Authority may also deregister if it is of the view that it would prejudice the safety of tax system and the same shall not result in the lapse of the Authority’s right to claim any tax or penalty. This amendment empowers FTA to recover the administrative dues even if the person is not registered under the act during the period of assessment.
26 Date of Supply in Special Cases The amendment prescribes the date on which one year has passed from the date on which the goods or services are provided as one of the events to determine the date of supply. Now entities need to pay tax within one year even if the invoice is not issued or payment was not received on time. Hence additional care needs to be taken to avoid tax irregularities.
27 Place of Supply (POS) of Goods In case of continuous supply of goods and the ownership of goods transferred inside the state, the POS shall be inside the state pursuant to Article 26 explained above. The scope of the Article now covers the continuous supply of goods.
30 POS in Special Cases POS for even transport-related services will be the place where the transportation starts. Earlier, the POS was the place of the supplier. However, due to the inclusion of said service under the bracket of a special case, the taxpayer needs to determine the POS on a case-to-case basis, even for transport-related services.
36 Value of Supply for Related Parties As regards the specific rule related to the value of supply or import of goods and services in case of related party transactions will now override Article 37 (value of deemed supply). This will resolve the ambiguity attached to the value of supply in case of deemed supply and transaction undertaken with related parties.
45 Supply of Goods and Services that is Subject to Zero Rate Additional supplies have been included in the ambit of zero-rated supplies of goods and services under Article in clauses 4, 5 and 6 has now additional items and includes import of means of transportation; import of goods related to means of transportation; and import of rescue planes and ships. This amendment will extend the scope of zero-rated supplies in the hands of the taxpayer.
48 Reverse Charge Domestic reverse charge will apply to Pure Hydrocarbons as defined. This change will limit the applicability of domestic reverse charge to ‘Pure hydrocarbons’ as compared to ‘any hydrocarbons’ earlier.
55 Recovery of Recoverable Input Tax in the Tax Period New clauses have been included in relation to the recovery of input VAT which specifies the requirements to recover VAT paid or declared on the import of goods or services. The said move is also beneficial to the taxpayer as they would recover tax paid or declared on import while filing their first return.
57 Recovery of Tax by Government Entities and Charities They shall be eligible to recover all credit except when the said credit pertains to Sovereign Functions of Government and Relevant Charitable Activity of Charity. Basis this amendment, proper bifurcation will be required between the Input tax credit related to sovereign functions and charity activity and other activities to recover the eligible credit by the taxpayer.
61 Instances and Conditions for Output Tax Adjustments Basis this amendment, a taxable person must issue a credit note to adjust the output tax in cases where incorrect tax treatment has been followed. The scope of output tax adjustment is extended to include ‘tax treatment applied incorrectly.’
62 Mechanism for Output Tax Adjustment A taxable person must issue a tax credit note within 14 days from the date on which any of the instances provided in Article 61(1) occur. Basis this amendment, the tax credit notes will need to be issued within a time limit of 14 days – this will entail a system and policy change for the taxpayers, including updating the underlying agreements, if any.
65 Conditions and Requirements for Issuing Tax Invoices Basis this amendment, it is now mandatory to pay the VAT to the Authority even in cases where such a person issues a tax invoice stating VAT on it or receives an amount as VAT. To ensure correct tax position, the amendment entrusts additional responsibility on the taxpayer to ensure that VAT is paid even in cases where just a tax invoice is issued.
67 Date of Issuance of Tax Invoice Date of issuance of tax invoice under Article 26 (date of continuous supply) to be 14 days from the date of the supply. Basis this amendment, the tax invoices will need to be issued within a time limit of 14 days from the date of supply – this will entail a system and policy change of the taxpayers, including updating the underlying agreements, if any.
74 Excess Recoverable Tax It has given the right to Authorities to adjust any refund due against liability and refund, if any after adjustment is not claimed, shall be carried forward. The Authority adopted the move in order to recover the administrative duties and taxes on time.
77 Tax Evasion The amendment overrides the cases of tax evasion as provided in the Tax Procedures Law. The taxpayers should diligently take care of all procedures prescribed.
 
Introduction of new Article on statute of limitations

A new Article (Article 79 bis) was added to the VAT Law, further to the amendments explained above. It is similar to the one that was recently added to the Excise Tax Decree-Law concerning the statute of limitation.
 
The Article focuses on the following key aspects:
  • Basis the Article, FTA may conduct a tax audit within the period of five years from the end of relevant tax period. Any tax audit or assessment after five years would be time-barred.
  • Five years will not apply in cases where:
    • FTA had issued a notice to conduct an audit to the taxable person before the expiration of five years, provided such an audit is completed within four years from the date of issuance of the notice.
    • A taxable person files a voluntary disclosure in the 5th year from the end of the relevant tax period, in this case, the FTA can conduct an audit or assessment within one year from such submission. In other words, the statute of limitation will be extended by one year.
    • In the case of tax evasion, as the period of audit, tax assessment has been extended to 15 years from the end of the relevant tax period in which tax evasion occurred.
    • If a taxable person fails to register for VAT, the period of audit, tax assessment, in this case, will get extended to 15 years from the date on which the taxable person was required to register.
  • The taxable person cannot file voluntary disclosure after the lapse of five years from the end of the relevant tax period.
  • Please note that such extended periods can further be amended by a separate Cabinet Decision.
Our Comments
The amendment to VAT law would come into effect from 1 January 2023, the underlying Executive Regulations are expected to be released soon, considering that changes are required to be undertaken in which businesses are functioning at present.

Basis the above, the business shall be required to conduct a detailed impact assessment as the amendments would impact:
  • Existing contracts – which will need to be amended
  • Policy changes – Like a change in the manner of raising invoices and credit note
  • Revisiting the tax position already undertaken
  • Maintenance of requisite documentation and record.
Accordingly, to avoid penal consequences, businesses are advised to ensure that changes in the underlying documentation and processes are carried out before the law comes into force.
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