The Decree-Law No. 18-2022 concerning VAT, announced on September 28, 2022, brings crucial modifications to the UAE Federal Decree-Law No. 8 of 2017 on VAT (Value Added Tax). These changes are slated to take effect on January 1, 2023, reshaping various aspects of VAT regulations in the UAE.
Key Changes Introduced by Decree-Law No. 18-2022
1. Expansion of Definitions
The updated legislation introduces new definitions pertinent to Relevant Charitable Activity, Pure Hydrocarbons, Tax Evasion, Tax Audit, Tax Assessment, and Voluntary Disclosure, providing clarity on these concepts within the VAT framework.
2. Extension of Goods Exempt from VAT
Article 7 now includes a provision empowering the Executive Regulations to classify certain supplies beyond the scope of VAT, besides vouchers or transfers of business.
3. Inclusion of Additional Zero-Rated Goods
Under Article 45 (clauses 4, 5, and 6), more products qualify for VAT exemption at a zero rate, encompassing the import of transportation means, transportation-related products, aircraft for rescue, and ship imports.
4. Enhancement of Input VAT Recovery
Article 55 sees the addition of two clauses outlining conditions for taxpayers to reclaim VAT on inputs, focusing on VAT declared or paid during goods and services import.
5. Streamlining VAT Output Adjustment
Article 61(1) delineates tax adjustments for outputs, necessitating taxpayers to furnish a tax credit acknowledgment in cases of improper tax treatment, thereby augmenting output tax.
6. Timely Issuance of Tax Credit Notes
Amendments to Article 62(2) mandate the issuance of tax credit notes within 14 days upon identifying situations outlined in Article 61(1).
7. Obligatory Tax Payment
Article 65(4) underscores the mandatory nature of tax payment to the Federal Tax Authority (FTA) following the issuance or receipt of invoices containing VAT.
8. Defined Timeline for Tax Invoice Issuance
Article 67(1) specifies a 14-day window post-supply for tax invoice issuance in alignment with Article 26, about the date of continuous supply.
9. Streamlined VAT Registration Exemption
Article 15's provisions regarding registration exemptions extend to both registered and unregistered individuals engaged in zero-rated supplies, simplifying registration criteria.
10. Clarity on Supply Date Determination
Article 26(1) clarifies the supply date determination criteria, setting a one-year benchmark from the supply date, supplemented by additional circumstances defining delivery time.
11. Implementation of Reverse Charge Mechanism
Article 48(3) delineates the applicability of the reverse charge in the domestic market specifically to Pure Hydrocarbons.
12. Precise Location of Supply
Article 30(8) elucidates the location of supply for transportation-related services, designating the supply source as the origin of transportation.
13. Residency Criteria for Principals
Article 33 redefines the principal's residence as the agent's home, departing from the previous requirement stipulating the principal's residence as the designated location.
14. Strengthening Anti-Avoidance Measures
Article 36 prioritizes specific anti-avoidance rules concerning supply values and import transactions among closely related parties over Article 37.
15. Introduction of Statute of Limitations Article
A new article introduces a statute of limitations, exempting instances where the FTA issues an audit notice, extending the statute by one year for voluntary disclosures made within the fifth year of the relevant tax year.
Preparing for the Transition
As the effective date of January 1, 2023, approaches, it's imperative for businesses to review and adapt to the amended UAE VAT Law. These changes will impact VAT application on various goods such as Hydrocarbons, transportation means, and equipment. Moreover, adherence to revised timelines for tax invoice and tax credit issuance, along with robust record-keeping practices, will be essential for compliance in the evolving regulatory landscape.
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