VAT 2.0: How The UAE's Updated Vat Executive Regulation Could Impact Your Business?

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BSA Ahmad Bin Hezeem & Associates LLP

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BSA is a full-service law firm headquartered in Dubai, UAE, with 9 offices across the region. We are deeply rooted in the region, offering a competitive advantage to clients seeking advice that works in the real world and is truly in tune with the market. We have rights of audience in every country where we have an office, means that we can litigate all the way from the boardroom to the courtroom.
The UAE's recent update to its Value-Added Tax (VAT) Executive Regulation under Federal Decree-Law No. 8 of 2017 introduces several significant changes that businesses across various sectors must pay attention to.
United Arab Emirates Tax

The UAE's recent update to its Value-Added Tax (VAT) Executive Regulation under Federal Decree-Law No. 8 of 2017 introduces several significant changes that businesses across various sectors must pay attention to. This update is designed to enhance regulatory clarity, address emerging challenges in digital assets, and ensure stricter compliance. For companies operating in the UAE, understanding these new rules is essential to staying on the right side of the law while optimizing their tax obligations. Here's an overview of the major changes and additions that will impact businesses.

  • Digital Assets Enter the VAT Framework

One of the most notable additions to the updated VAT regulation is the taxation of digital assets and virtual currencies. In previous versions, digital assets were not specifically addressed, leaving businesses uncertain about how to handle VAT obligations on cryptocurrencies and other blockchain-based assets.

For companies engaged in digital finance or holding digital assets, this means that VAT is applicable on transactions involving assets like cryptocurrencies and NFTs. To comply, businesses must implement robust tracking systems to accurately report and calculate VAT on these digital transactions.

  • Clarified Rules for Cross-Border Services

The updated regulation provides new clarity on the export and import of services, particularly for indirect exports and services supplied to non-residents without a fixed establishment in the UAE. These changes help businesses navigate previously ambiguous scenarios regarding VAT treatment for cross-border services.

This refined definition simplifies the process for companies offering consulting, technology, or advisory services to foreign clients, ensuring that VAT is correctly applied. Businesses should revisit their service agreements and transactions to ensure compliance with the updated rules, reducing the risk of VAT underpayment or overpayment.

  • Exemptions for Government Entities and Real Estate Transactions

Among the key additions is a new provision exempting government entities from VAT on certain transactions, particularly in the real estate sector. This is a welcome update for public entities managing real estate transfers or projects between various government bodies. This removes uncertainty by clearly exempting these internal government transfers from VAT, which could significantly streamline large infrastructure or development projects.

For Directors overseeing government contracts or public-private partnerships, this new provision offers both clarity and cost-saving opportunities. It is important to review contracts and projects involving government entities to identify where these exemptions apply, ensuring that VAT isn't mistakenly calculated where it's not due.

For businesses involved in public infrastructure projects or real estate developments with government entities, this exemption can simplify financial planning. The exemption removes a layer of complexity and reduces costs, enabling smoother execution of large-scale projects.

  • Fund Management Services Now Exempt

Another important addition to the amended VAT regulation is the inclusion of fund management services under VAT exemptions. This change directly impacts the financial services sector, especially companies involved in managing investment funds, pension funds, or mutual funds.

Previously, there was uncertainty regarding the VAT treatment of fund management services, but the updated regulation now clearly exempt them. This is a significant cost-saving measure for fund managers and investors, as VAT no longer needs to be factored into the administration of these services. Businesses in the financial services sector should review their offerings to ensure they are capitalizing on this exemption.

  • Tighter Requirements for Group VAT Registration

The updated regulation places more stringent requirements on businesses applying for group VAT registration. Under the updated provision, companies must provide documentation to demonstrate the economic and organizational links between the entities in the VAT group.

For large conglomerate or a complex corporate structure, this could introduce new administrative hurdles. Companies should ensure that their internal records clearly show the relationships between group entities to avoid delays or rejections in their VAT group applications. A failure to meet the higher documentation thresholds could result in compliance issues down the line.

The Takeaway: What Businesses Need to Do

The updated VAT Executive Regulation represents a significant step forward in the UAE's evolving tax framework. These changes are more than regulatory updates—they're strategic shifts that require careful planning and proactive management. It brings a series of important updates that businesses in the UAE must address, it signals a shift toward stricter compliance and expanded exemptions in key sectors, from digital asset taxation to fund management exemptions and stricter registration requirements, the new rules reflect a more comprehensive and refined approach to VAT regulation.

As these updates roll out, businesses should prioritize VAT compliance, leveraging expert advice where necessary to ensure a seamless transition. Now is the time for businesses to reassess their VAT practices, ensure compliance with the new regulations, and take advantage of the expanded exemptions where applicable.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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