In addition to a 0%/VAT exemption on some products and services, the United Arab Emirates (UAE), which consists of seven emirates (Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al Khaimah, Sharjah, and Umm Al Quwain), implemented a 5% VAT on goods and services as of January 2018. Among the six countries under the Gulf Cooperation Council (GCC), a VAT levy has been introduced only in the UAE, Saudi Arabia, Bahrain, and Oman. The UAE has got all the typical VAT provisions – reverse charge, designated zones, the ‘use and enjoyment’ concept, time of supply, electronic filings, registration thresholds, exemptions, etc. As of now, export transactions to other GCC countries are treated on par with transactions with countries outside the GCC by virtue of the transitional rules. This concept is set to continue until all GCC governments have adopted the Electronic Services System (ESS).
With effect from January 2023, the UAE VAT law has undergone significant changes, some of which are shown below:
- The place of supply for transportation services would be the place where the transportation begins.
- Supplies between related parties made without consideration are valued according to market value.
- Domestic reverse charge is restricted only to pure hydrocarbons. Hitherto it was applicable to all hydrocarbons.
- The following imports would be entitled to a zero rating:
- Means of transportation
- Goods related to means of transportation
- Rescue planes
- Rescue ships, and
- Basic preventive healthcare services.
- A 14-day time period applies for raising credit notes if output VAT has to be adjusted. The relevant scenarios are:
- VAT was wrongly charged – Incorrect tax treatment was applied
- Invoice (Supply) cancellation
- Any changes/ amendments to the consideration that was previously agreed upon
- Sales returns and consequent refund of consideration; or
- Change in the nature of supply and corresponding change in VAT to be charged
- Mandatory retention of invoices/ import documents for recovery of tax on imported goods and services.
- A 14-day period following the date of supply has been set up for invoicing for continuous or periodic supplies and supplies involving consecutive invoices. Moreover, in such circumstances, if the ownership of goods is transferred within the UAE, the place of supply also needs to be the UAE, which is in line with the standard practice that is already adopted by taxpayers.
- The Federal Tax Authority (FTA) has amended certain audit-related provisions regarding timelines. The amendment has increased the time available for the FTA to raise a tax audit/ assessment.
The Emaratax platform was introduced on 5th December 2022, to augment the capability of the government to administer taxes in the UAE which would enable quicker decision-making and support taxpayers, who can better access the FTA’s services, pay their taxes, and obtain refunds with ease. The transition and data migration from the earlier electronic tax system to Emara has been seamless, resulting in a modern integrated digital infrastructure being embraced. The Emara portal has also introduced the ‘Single Sign On’ all-purpose digital signature feature of UAE PASS, a national digital identity.
