Public Clarification Issued For Amendment In Executive Regulations Of Federal Decree Law

1

Definition

The new definition of virtual assets is digital representations of value that can be traded, converted, or used for investment purposes, excluding digital representations of fiat (UAE DIRHAMS) currencies or financial securities.

Changes were also made to the definition of Business Days and Standard Rate.

Incorporating a clear definition of virtual asset provides much-needed clarity for businesses and investors operating in the digital economy.

2(4)(b)

Supply of goods

It has been clarified that any disposal of real estate resulting in the transfer of ownership thereof by one person to another is to be considered as supply of goods.

The amendment impacts real estate transactions by requiring businesses to charge and account for VAT, ensuring clearer compliance for developers, investors, and buyers.

4(4)

Single Composite Supply

The new provision clearly states that multiple supplies will only be considered as a single composite supply if they meet specific criteria, such as:

• The different components must be supplied by a single supplier.
• The price of the different components must not be separately identified or charged by the supplier.

It is further clarified that if the supplier subcontracts some of the components to a third party but remains contractually responsible for the supply to the recipient, the supplier is still regarded as supplying such components, and the first condition that all the components must be supplied by a single supplier would be met.

Also, even if the supplier charges a single price for all the components, it would not be regarded as a single composite supply if the price for each component is separately identified, e.g., if the tax invoice, quote, or underlying contract reflects the price of each component separately.

The amendment impacts real estate transactions by requiring businesses to charge and account for VAT, ensuring clearer compliance for developers, investors, and buyers.

5

Exceptions Related to Deemed Supply

• The new provision sets a clear threshold of AED 2,000. VAT will apply only if the value of the deemed supply exceeds AED 2,000 within a 12-month period. Further, VAT shall apply only to the amount in excess of AED 2,000.
• In the case of deemed supplies, where both the supplier and recipient are either a government entity or a charity as defined in Article 1 of the Decree-Law, the output tax threshold is AED 250,000 (instead of AED 2,000) per 12-month period per supplier.

The said amendment will prevent businesses from being unnecessarily taxed on lower value deemed supplies, reducing tax liabilities and improving cash flows.

8

Voluntary Registration

As per the amended Article 8, a person is required to provide an intention of conducting a business and intention of making a supply in order to take a voluntary registration.

The FTA has clarified that such intention may, for example, be demonstrated by contracts to supply taxable goods and or services to other persons for consideration.

It is further clarified that a UAE resident would not be eligible to apply for voluntary tax registration even if he incurs taxable expenses exceeding the registration threshold, unless he carries on business in the UAE and can prove that he intends to make any of the supplies listed in Article 54(1) of the Decree-Law.

The amendment impacts real estate transactions by requiring businesses to charge and account for VAT, ensuring clearer compliance for developers, investors, and buyers.

14

Tax Deregistration

Article 14(9) has been introduced to state that compliance with all provisions of law is required, 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 cancelled. Further, there are procedural changes that need to be adhered to once a deregistration application is made.

16

Exception from registration

Article 16(3) of the Executive Regulation was amended to require the taxable person to notify the FTA if any changes occur to his business that are likely to lead to the person not being eligible for the exception from registration within 10 business days from the date he makes any standard-rated supply or import.

Persons eligible for an exception from VAT registration would have to be mindful regarding the new time limit in the event of making any standard-rated supply or import.

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.

However, where the shipping fees and installation charges are charged by a registrant, such costs should not be included in the purchase price as the recipient may recover input tax based on the tax invoice issued by the supplier of such services.

Additional clarity is provided regarding the calculation of profit margin and subsequent VAT thereon.

30

Zero-Rating of Exported Goods and Services

1. The new amendment provides clear criteria for applying zero-rating to exported goods and services.
2. 1. Goods: To qualify for zero-rating, businesses must provide documentation like shipping certificates and customs declarations to prove that goods were physically exported from the UAE.
   2. Services: Zero-rating applies if services are provided to a customer outside the UAE, and the business must show that the place of supply is outside the country.

2. Businesses must maintain detailed evidence (e.g., shipping documents, contracts) to prove the goods or services' export status.
   
   It is also clarified that the zero-rating of direct or indirect exports of goods before 15 November 2024 remains subject to the documentary evidence required under Article 30 of the Previous Executive Regulation prior to the amendment.

Exporters now have clear rules to follow when claiming zero-rating on exports, ensuring consistency and reducing uncertainty.

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 a 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.

The clarification provides further illustrations and examples to highlight the applicability of zero rates in various cases such as sub-contracting, etc.

The Public Clarification provides an in-depth analysis of the implications of the VAT amendment for international transportation services.

34

Zero-rating Certain Means of Transport

Clause 2 of Article 34 was amended to clarify that only ships, boats, or other floating structures that are designed or adapted to be used for the commercial transportation of passengers and goods constitute qualifying means of transport, provided that they are not designed or adapted for recreation, pleasure, or sports.

Further illustrations clarify where a ship is used for commercial purposes, but its main purpose is not to transport goods or passengers; the ship would not constitute a means of transport, e.g., a ship used for commercial fishing, a drilling ship, or a dredger. The supply or importation of such a ship would, therefore, not qualify for zero-rating.

The clarifications enable businesses involved in the supply of means of transport to grasp the VAT applicability on their supplies better.

35

Zero-rating Goods and Services in Connection with Means of Transport

The clarification distinguishes between the three categories of goods and services related to the supply of a qualifying means of transport that qualify for zero rating under this Article. Illustrations highlight what would and wouldn't be classified as "Goods and services in connection with means of transport" under different scenarios and the applicability of zero-rate VAT thereon.

The clarification is crucial for businesses providing support services in relation to means of transport in determining the VAT applicability on their supplies.

37

Residential Buildings

It is clarified that the supply of a hotel apartment, a serviced apartment, or the like in the UAE does not qualify for zero rating or exemption but is subject to 5% VAT if supplied by a taxable person.

The amendment and public clarification emphasize VAT applicability for the supply of hotel apartments to exclude them from the benefit of VAT zero-rating.

42

Exempt Financial Services include Virtual Assets services and Fund Management services.

The new amendment has broadened the scope of VAT Exemption to include services related to the transfer of virtual assets and fund management services. The said exemption is effective from 01 January 2018.

The amendment ensures that businesses in transfer virtual assets and fund management services receive tax relief, which can reduce operational costs and promote growth in these sectors.

52

Input tax recovery in respect of exempt supplies

It is clarified that a person with a short-term presence in the UAE of less than a month is only regarded as being outside the UAE if this presence is not effectively connected with the supply, e.g. if the person is in the UAE for a short holiday or transits through the UAE and does not have any meetings related to the supply while in the UAE.

The amendment is significant as it establishes whether a person is regarded as being in or outside the UAE to determine VAT applicability.

53 (1) (c)

Health Insurance VAT Recovery

The new amendment allows VAT-registered employers to recover VAT on health insurance premiums paid for employees and their families, even if there is no legal requirement to provide such insurance. The amendment is effective from 15 November 2024 and cannot be applied retroactively.

In case a premium has been paid prior to 15 November 2024 for an aforesaid person, only the credit pertaining to the period post 15 November 2024 can be recovered, provided sufficient documentation is available.

The term "Family" includes a spouse and three children upto 18 Years

The said changes provide employers eligibility to recover VAT on health insurance expenses, including top-ups, as long as it is for employees and their families

59

Tax Invoices

The recent amendments to Article 59 of the UAE VAT Executive Regulation clarify the following:

• Issuance of Tax Invoices: Only VAT-registered "registrants" can issue tax invoices, including simplified ones, with amounts expressed in AED.
• Reverse charge transactions require full tax invoices, and the FTA can grant or revoke administrative exceptions.
• Agent and Record-Keeping Requirements: Agents must maintain records for both their own and the principal's details, strengthening documentation and compliance obligations.
• Invoice Deadlines and FTA Authority: Simplified invoices must be issued on the supply date, while summary invoices are due within 14 days after month-end. The FTA can mandate full tax invoices in certain cases, even if simplified invoices are allowed.

The amendments to Article 59 clarify that only VAT-registered registrants can issue tax invoices, with strict rules for simplified invoices and reverse charge mechanisms.