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Document Type: PC - Public Clarification
Guidance Code: VATP036
Year:
Related Law: uae-indirect-vat-8-of-2017
Authority: Federal Tax Authority

SWIFT messages - VATP036

VATP036

VATP036

VAT Public Clarification

SWIFT messages

Issue

Banks and exchange houses (collectively referred to as financial institutions) may only recover VAT imposed on international bank charges from banking institutions outside the UAE to the extent such costs are incurred to make taxable supplies and provided the financial institutions obtain and retain the required supporting documents.

In practice, such international bank charges and their underlying transactions are evidenced by SWIFT messages which do not meet the requirements to constitute tax invoices for UAE VAT purposes.

This Public Clarification clarifies the Federal Tax Authority's (FTA) position on the acceptability of SWIFT messages for the purposes of documentation requirements and to support input tax recovery.

Summary

As taxable persons, when financial institutions receive interbank services from non-resident banks, they are regarded as making supplies to themselves in respect of these interbank services and are required to issue tax invoices to themselves in respect of these supplies. These financial institutions shall also be responsible for all other applicable tax obligations and to account for the due tax.

Financial institutions may only recover the related input tax to the extent the cost is incurred to make taxable supplies and provided that the required supporting tax invoices are obtained and retained. Considering the volumes of SWIFT messages UAE financial institutions receive on a daily basis, it would be impractical to require financial institutions to issue a tax invoice to themselves for each SWIFT transaction.

Provided the SWIFT message contains sufficient information to establish the particulars of the supply, UAE financial institutions are not required to issue a tax invoice to themselves in respect of interbank services received from a non-resident bank and for which such SWIFT Communication has been received.

Detailed analysis

Financial institutions are entitled to recover input tax to the extent the cost was incurred for the purpose of making taxable supplies. [1]

The input tax may then be deducted through the tax return relating to the first tax period in which the financial institution received the tax invoice in respect of the supply and pays the consideration or part thereof.

Receipt of Concerned Services

Financial institutions incur international bank charges from banking institutions outside the UAE as a result of using the Society for Worldwide Interbank Financial Telecommunications (SWIFT) communication system with these non-resident banks.

The provision of the right to use the SWIFT communication service constitutes a service for VAT purposes.

If this service is received by a financial institution that is a resident of the UAE, according to the general place of supply rule, the place of supply is in the UAE. [2]

Consequently, where such service is received from outside the UAE, it constitutes a concerned service [3]for UAE VAT purposes.

As a taxable person, the financial institution is regarded as making a taxable supply to itself when it imports such concerned service, and is responsible for all applicable VAT obligations and accounting for VAT on the service. [4]

Issuing Tax Invoices

Financial institutions that are registered for VAT in the UAE are required to issue and deliver an original tax invoice to the recipient of taxable services supplied by the financial institution. [5]

This means that the financial institution is required to issue a valid tax invoice, to itself as recipient of the supply, in respect of each SWIFT transaction for which it incurs interbank charges.

However, Article 59(7)(b) of the Executive Regulation [6]provides that, where there are (or will be) sufficient records available to establish the particulars of any supply or class of supplies, and that it would be impractical to require the issuance of a tax invoice by the taxable person, the FTA may determine that a tax invoice is not required to be issued in certain cases.

Considering the administrative burden to issue tax invoices to itself for a high number of SWIFT-related concerned services, the FTA recognises the impracticality for financial institutions to issue tax invoices in respect of international bank charges incurred from non-resident banking institutions as a result of using the SWIFT communication system with these non-resident banks. Therefore, the SWIFT message will be accepted as a sufficient record to establish the particulars of the supply, provided the following information is reflected on the SWIFT message:

  • Name and address of the non-resident bank (SWIFT sender/supplier)

  • Name of the UAE financial institution receiving the service (SWIFT receiver/customer)

  • Date of the transaction

  • SWIFT message reference number

  • Transaction reference number

  • Description of the transaction

  • Consideration charged and currency used

If the above requirements are met, the SWIFT message (“Qualifying SWIFT message”) would be accepted as sufficient documentary evidence to prove the supply of the interbank service received from the non-resident bank, and the UAE financial institution shall be considered as having supplied the service to itself.

Considering the above, a UAE financial institution is not required to issue a tax invoice to itself if it retains the relevant Qualifying SWIFT message as evidence of the transaction.

Input tax recovery

Financial institutions are eligible to recover VAT incurred to the extent such costs are incurred to make taxable supplies.

The input tax may be recovered in the first tax return, or the immediately following tax period, in which the financial institution obtained the relevant supporting document and made payment or intends to make payment within 6 months of the agreed date for payment. [7]For more information on the timeframe for recovering input tax, please refer to VATP017.

For purposes of input tax recovery, considering the nature of the Qualifying SWIFT message, it is accepted as sufficient documentary evidence to support the recovery of input tax that relates to this specific imported service. The recovery of input tax is subject to the other normal VAT recovery rules. [8]

This Public Clarification issued by the FTA is meant to clarify certain aspects related to the implementation of Federal Decree-Law No. 8 of 2017 on Value Added Tax and its Executive Regulation.

This Public Clarification states the position of the FTA and neither amends nor seeks to amend any provision of the aforementioned legislation. Therefore, it is effective as of the date of implementation of the relevant legislation, unless stated otherwise.

Legislative References

In this clarification, Federal Decree-Law No. 8 of 2017 on Value Added Tax and its amendments is referred to as “Decree-Law”, and Cabinet Decision No. 52 of 2017 on the Executive Regulation of the Federal Decree-Law No. 8 of 2017 on Value Added Tax and its amendments is referred to as “Executive Regulation”.

[1] Article 54(1) of the Decree-Law states that the input tax that is recoverable by a taxable person for any tax period is the total of input tax paid for goods and services which are used or intended to be used for making any of the following:

  • Taxable supplies

  • ...

[2] Article 29 of the Decree-Law states that the place of supply of services shall be the place of residence of the supplier.

[3] Article 1 of the Decree-Law defines the following terms as:

  • “Concerned services” – Services that have been imported, where the place of supply is considered to be in the State, and would not be exempt if supplied in the State

  • “Import” - The arrival of goods from abroad into the territory of the State or receipt of services from outside the State

  • “State” - United Arab Emirates.

[4] Article 48(1) of the Decree-Law states that, if the taxable person imports concerned goods or concerned services for the purposes of his business, then he shall be treated as making a taxable supply to himself, and shall be responsible for all applicable tax obligations and accounting for due tax in respect of these supplies.

[5] Article 65(1) of the Decree-Law states that a registrant making a taxable supply shall issue an original tax invoice and deliver it to the recipient of goods or recipient of services.

[6] Article 59(7) of the Executive Regulation states that, where the Authority considers that there are or will be sufficient records available to establish the particulars of any supply or class of supplies, and that it would be impractical to require that a tax invoice be issued by the taxable person, the Authority may determine that, subject to any conditions that the Authority may consider necessary:

  • Any of the particulars specified in Clauses 1 or 2 of this Article shall not be contained on a Tax Invoice.

  • A Tax Invoice is not required to be issued in certain cases

[7] Article 55 of the Decree-Law states that:

  1. Taking into consideration the provisions of Article 56 of this Decree-Law, the recoverable input tax may be deducted through the tax return relating to the first tax period in which the following two conditions have been satisfied:

    1. If any of the following cases has occurred:

      1. The taxable person receives and retains the tax invoice as per the provisions of this Decree-Law, provided that the tax invoice includes the details of the supply related to such input tax, or keeps any other document pursuant to Clause 3 of Article 65 of this Decree-Law in relation to the supply on which input tax was paid.

      2. …

      3. The taxable person imports the services, and receives and retains invoices in accordance with the provisions of this Decree-Law and its Executive Regulation in relation to the import on which input tax was declared.

    2. The taxable person pays the consideration or any part thereof, as specified in the Executive Regulation of this Decree-Law.

  2. If the taxable person entitled to recover the input tax fails to do so during the tax period in which the conditions stated in Clause 1 of this Article have been satisfied, he may include the recoverable input tax in the tax return for the subsequent tax period.

[8] Article 55(5) of the Executive Regulation states that, to determine the input tax that could be recoverable, the taxable person shall apportion input tax as follows:

  1. Input tax on supplies that wholly relate to supplies as specified in Clause 1 of Article 54 of the Decree-Law made by the taxable person shall be recoverable in full.

  2. Input tax that does not relate to supplies as specified in Clause 1 of Article 54 of the Decree-Law made by the taxable person shall not be recoverable unless provisions allow otherwise.

  3. Input tax that partly relates to supplies as specified in Clause 1 of Article 54 of the Decree-Law and partly not, shall be apportioned in accordance with Clause 6 of this Article and only that part that relates to supplies as specified in Clause 1 of Article 54 of the Decree-Law shall be recoverable.