Cabinet Decision No. 100 of 2024on the Executive Regulation of Federal Decree-Law No. (8) of 2017 recently issued, which revoked Cabinet Decision No. 52 of 2017on the Executive Regulation of Federal Law No. (8) of 2017 and its amendments (Old Executive Regulation) have brought about major changes to Executive Regulations in the last seven years.
The Federal Tax Authority has carried out changes considering the business scenario and manner in and around UAE and shall be effective from 15 November 2024. However, few of the regulations shall be effective retrospectively. We have provided a detailed explanation, basis our understanding of the key relevant amendments in the table below:
| Article No. | Heading | Amendment | Nexdigm Comments |
|---|---|---|---|
| 1 | Definitions | There is a change in the definition of Decree- Law, Legal representative and Notification. There are a few additions, like Business Day and Virtual Assets. | The said changes shall provide better clarity to the amendment made in the Executive Regulations. |
| 3 | Exception of Supply |
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Transfer of real estate and related assets between the government shall not be covered in the scope of VAT. This is a major relief for the real estate development undertaken in the UAE. |
| 5 | Exception of Deemed Supply | Deemed supplies between the Government/Charitable entities under AED 250,000 over 12 months are excluded from VAT. | Threshold has now been introduced for transactions between Government/Charitable Entities. |
| 8 | Voluntary Registration | As per Article 8, a person is required to provide an intention of conducting a business and making a supply in order to take a voluntary registration. | It would be relevant to see how the intent is being checked by authorities. |
| 14 | Tax Deregistration | Article 14(9) has been introduced to state compliance with all required provisions of law, including the obligation to submit another tax registration request when the requirements for tax registration are met. |
The person will be liable to pay his past obligation under Decree Law even if his Tax registration has been canceled. Furthermore, there are procedural changes that need to be adhered to once a deregistration application is made. |
| 14 (bis) | Tax Deregistration to Protect the Integrity of the Tax System | The said Article has been newly introduced, which states that the Authority may deregister a person if their registration prejudices the integrity of the Tax System in a specific situation and ensures overall compliances required for said person. | Tax persons have to be compliant once tax registration has been obtained. |
| 29 | Profit Margin Scheme | Clause 5 has been added to specify that "purchase price" includes, in addition to the price of the goods, any costs and fees incurred to purchase the goods. | Additional clarity is provided regarding the calculation of profit margin and subsequent VAT thereon. |
| 30 | Zero rating the export of goods |
This Article highlights the conditions for zero- rating export of goods. The amendment elaborates documentary evidence required to be retained by the exporter in case of Direct as well as Indirect Export of Goods as any of the following:
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Exporters would have greater clarity regarding the specifications of export evidence to be maintained. |
| 31 | Zero-rating the Export of Services |
This Article highlights the conditions for zero- rating export of services. Clause 1(a) of said Article has been amended to specifically exclude services for which the place of supply falls in the UAE mainland/Designated Zone as per the special Place of Supply provisions covered under Clauses 3 to 8 of Article 30 and Article 31 of the Decree-Law. |
The scope of zero-rated export of service has been restricted. |
| 33 | Zero-rating international transportation services for Passengers and Goods | Article 33(1)(d) has been amended to stipulate that the supply of transporting goods from one place in the State to another place in the State and the transport-related services shall be zero-rated only if the same supplier supplies the services. | Additional conditions are imposed for zero-rating international transportation services. |
| 34 and 35 | Zero-rating certain Means of Transport and Zero-rating Goods and Services in Connection with Means of Transport |
Article 34 has been amended to cover the import of means of transport under zero-rate of VAT subject to the specified conditions. The zero VAT rate under Article 35 is extended to the import of goods, except fuel or other oil or gas products, in the course of operating, repairing, maintaining, or converting the means of transport, subject to specified conditions. Furthermore, the zero-rated services that are supplied directly in connection with the means of transport referred to in Article 34 for the purposes of operating, repairing, maintaining or converting the means of transport have been elaborated as any of the following:
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The clarifications enable businesses involved in the supply of means of transport and related services to better grasp the VAT applicability on their supplies. |
| 42 | Tax Treatment of Financial Services |
Article 42(2) now includes the following within the definition of financial services:
Article 42(3) exempts these services. Exemption for the services mentioned in 2nd and 3rd point above is applicable retrospectively from 1 January 2018. |
This is a significant amendment since it now exempts investment management services and transactions pertaining to digital assets, a booming area of investment. The investors shall now be at a benefit owing to tax exemption. |
| 46 | Tax on Supplies of More Than One Component | Article 46(1) has now been amended to specify that the tax treatment shall be determined on the basis of the nature of the overall supply in cases where there is no principal component in the composite supply. | This update provides greater clarity on the tax treatment of composite supplies, ensuring that the overall nature of the supply dictates the tax implications. |
| 53 | Non- recoverable Input Tax | Article 53(1)(c)(3) has been newly added, which shall allow the claiming of input tax on health insurance, including enhanced health insurance for employees and dependents up to one spouse and three children under the age of 18. | This addition by the Authorities is advantageous to the entities as it allows them to recover VAT on employee benefit expenses. |
| 55 | Apportionment of Input Tax |
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The mechanism of calculating allowable input tax based on a fixed percentage is useful for businesses with somewhat consistent expenses and shall provide relief by way of relinquishing the need to calculate recurrently. |
| 58 | Adjustments under the Capital Assets Scheme | Article 58(17) has been inserted to clarify that the first tax year for a self-developed capital asset shall be the year in which the asset is first used. | The FTA has now clarified the first year for accounting VAT on a particular class of asset. This understanding can potentially reduce the amount of tax payable or increase the amount of tax refundable, providing a financial advantage. |
| 59 | Tax invoices |
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| 60 | Tax Credit Note |
Article 60(1)(e) has been amended to state that an additional tax credit note in relation to an invoice shall mention taxable value after adjustment of the initial credit note. Article 60(6) has been amended to state that credit note issued by the agent correlates with details maintained by the principal. |
Details have to be correctly maintained to ensure that documentation has been kept. |
| 69 | Foreign Governments | A condition is inserted into existing Article 69(2)(d), now referred to as Article 69(3), outlining the timeline for submitting a tax refund request. The claim is to be filed within 36 months from the date the tax was incurred by the official or within any other period specified by an international treaty or agreement in force in the State. | Understanding the timeline for refund requests is important for financial planning. Officials can anticipate when they might receive refunds and plan their finances accordingly. |
Our Comments
The amendments to Executive Regulations will come into effect from 15 November 2024 onwards and provide the changes that are required to be undertaken in the businesses that 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 changes in the manner of raising invoices and credit note;
- Revisiting the tax position already undertaken;
- Maintenance of requisite documentation and records.
Accordingly, to avoid any penal consequences, businesses are advised to ensure that changes in the underlying documentation and processes are carried out in time before the law comes into force.
Furthermore, it is expected that there could be changes that could be introduced in Decree- Law or Public Clarification shall be issued to provide clarity on various changes that have been introduced.
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.
