Issue

Value Added Tax ("VAT") is regulated by the Federal Decree-Law No. 8 of 2017 on Value Added Tax and its amendments ("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 ("Executive Regulation").

The Executive Regulation was amended by Cabinet Decision No. 100 of 2024 on the Amendment of Some Provisions of the Cabinet Decision No. 52 of 2017 on the Executive Regulation of Federal Decree-Law No. 8 of 2017 on Value Added Tax ("Cabinet Decision No. 100") that became effective on 15 November 2024.

In this Public Clarification, where relevant, the Executive Regulation prior to 15 November 2024 is referred to as the "Previous Executive Regulation" and the Executive Regulation amended by Cabinet Decision No. 100 with effect from 15 November 2024 is referred to as "New Executive Regulation".

Summary

This Public Clarification is intended to illuminate the main changes to the Executive Regulation.

The following Articles were amended:

• New definitions (Article 1)

• Supply of goods (Article 2)

• Supply of more than one component (Article 4)

• Exceptions related to deemed supply (Article 5)

• Mandatory registration (Article 7)

• Voluntary registration (Article 8)

• Tax deregistration (Article 14)

• Deregistration of a tax group registration or amendment thereof (Article 15)

• Exception from registration (Article 16)

• Telecommunication and electronic services (Article 23)

• Accounting for tax on the profit margin (Article 29)

• Zero-rating the export of goods (Article 30)

• Zero-rating the export of services (Article 31)

• Zero-rating international transportation services for passengers and goods (Article 33)

• Zero-rating certain means of transport (Article 34)

• Zero-rating goods and services in connection with means of transport (Article 35)

• Residential buildings (Article 37)

• Zero-rating of buildings specifically designed to be used by charities (Article 38)

• Zero-rating healthcare services (Article 41)

• Tax treatment of financial services (Article 42)

• Tax on supplies of more than one component (Article 46)

• Special rules of import (Article 50)

• Input tax recovery in respect of exempt supplies (Article 52)

• Non-recoverable input tax (Article 53)

• Apportionment of input tax (Article 55)

• Adjustments under the capital assets scheme (Article 58)

• Tax invoices (Article 59)

• Tax credit note (Article 60)

• Tax return and payment (Article 64)

• Recovery of excess tax (Article 65)

• Tourist visitors (Article 68)

• Foreign governments (Article 69)

• Record-keeping requirements (Article 71)

The following new Articles were added:

• Article 3 (bis) – Exceptions of Supplies

• Article 14 (bis) – Tax deregistration to protect the integrity of the tax system

This Public Clarification does not address all textual amendments.

Detailed analysis

New definitions – Article 1

The definition of "business day" was introduced to align with the definitions per Federal Decree-Law No. 28 of 2022 on Tax Procedures, and its amendments ("Tax Procedures Law").

The term "standard rate" was introduced to define the tax rate as specified in Article 3 of the Decree-Law, i.e. 5%.

A new definition was introduced for "virtual assets" to be read with the updated Article 42 of the Executive Regulation dealing with financial services.

According to this definition, crypto currencies (e.g. Bitcoin and Ethereum) as well as any other digital representations of value that can be digitally traded, converted or used for investment purposes would be regarded as virtual assets for VAT purposes.

As an exception to the above, digital representations of fiat currency (e.g. UAE Dirhams) or financial securities are explicitly excluded from the definition of virtual assets.

Supply of goods – Article 2(4)(b)

Article 2(4)(b) of the Executive Regulation was amended to confirm that any disposal of real estate resulting in the transfer of ownership thereof by one person to another is considered to be a supply of goods.

Exceptions of Supplies – Article 3 (bis)

According to Article 3(bis)(1)(a), certain grants, disposals and other transfers of ownership of government buildings, real estate assets and other similar projects from one government entity (as defined in Article 1 of the Decree-Law) to another, will not be regarded as supplies, and would, therefore, fall outside the scope of VAT.

The term "government entities" means Ministries, government departments and agencies, authorities and public institutions in the UAE, whether Federal or local, or any other entities treated with the treatment decided for government entities, in accordance with the decisions issued by the Cabinet for the purposes of implementing the provisions of the Decree-Law.

Further, according to Article 3(bis)(1)(b), the grant or transfer of the right to use, exploit or utilise government buildings, real estate assets and other projects of a similar nature from one government entity (as defined in Article 1 of the Decree-Law) to another will not be regarded as a supply, and would, therefore, fall outside the scope of VAT. This provision has been given retroactive effect from 1 January 2023.

The phrase "government buildings, real estate assets and other projects of similar nature" means:

• Government entities" premises.

• Government capital projects.

• Government infrastructural projects.

• Real estate assets used by government entities.

• Real estate assets allocated and used to serve a public utility and for public use.

• Developed government land.

The scope of buildings, real estate assets and other projects of similar nature qualifying for this exception shall be determined under a decision issued by the Minister.

In other words, the exception will not automatically apply to all government buildings, real estate assets and other projects of similar nature.

Supply of more than one component – Article 4(4)

Article 4(4) of the Executive Regulation was amended to clarify that, in order for a single composite supply to exist, the different components must be supplied by a single supplier and the price of the different components must not be separately identified or charged by the supplier.

In other words, the amendment clarifies that even where a supply falls within the meaning of Article 4(3) of the Executive Regulation, it will not be considered as a single composite supply until the requirements of Article 4(4) of the Executive Regulation are met.

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.

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.

For example, if a single fee is charged for a marketing campaign, but the price for each component (e.g. venue rental, catering, promotional goods etc.) is specified in the contract, the supply would not constitute a single composite supply as the prices of the different components of the supply are separately identified.

Another example would be where a mobile phone is sold for a single price but the contract lists the price of the phone, maintenance and warranty separately. This supply would also not qualify as a single composite supply since the prices of the different components of the supply are separately identified.

Exceptions related to deemed supply – Article 5

Since Article 12 of the Decree-Law already reflects the cases where supplies are not considered as deemed supplies, these cases were deleted from Article 5(1) of the Executive Regulation.

Article 5(1) of the Executive Regulation was amended to clarify that a supply of samples or commercial gifts would not constitute a deemed supply if the value of such goods supplied within a 12-month rolling period does not exceed AED 500 per recipient. This is similar to Article 5(1)(d) of the Previous Executive Regulation.

Article 5(2)(a) of the New Executive Regulation replaces Article 5(1)(e) of the Previous Executive Regulation with regards to the threshold in respect of output tax for purposes of Article 12(5) of the Decree-Law.

Generally, if the total output tax payable on all deemed supplies is AED 2,000 or less within a 12-month period, the supply would not be regarded as a deemed supply.

The amendment specifies that, where this monetary threshold is exceeded, only the amount in excess of the AED 2,000 would be considered as payable tax, i.e. the related supply would be regarded as a deemed supply.

For example, if a pharmaceutical company gives away free goods that cost AED 600 to a hundred recipients, the total cost of free goods is AED 60,000 and the total output tax calculated on all supplies made for no consideration within a 12-month period equals AED 2,857 (60,000 x 5/105). In this case, payable tax to the FTA is AED 857 (AED 2,857-2,000).

The part of the supplies that result in an output tax, for a 12-month period, of AED 2,000 shall fall under the exception of Article 12(5) of the Decree-Law and shall not be considered a deemed supply.

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.

Article 5(3) of the New Executive Regulation is similar to Article 5(2) of the Previous Executive Regulations with updated legislative references to clauses 1 and 2 of the same Article.

Voluntary registration – Article 8

Article 8(6) of the Executive Regulation was amended to clarify that a person is required to provide evidence to demonstrate to the FTA that he conducts a business in the UAE and that he has the intention to make supplies listed in Article 54(1) of the Decree-Law, in order to be eligible for voluntary registration.

Such intention may, for example, be demonstrated by contracts to supply taxable goods and or services to other persons for consideration.

In light of the above, 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.

Tax deregistration – Article 14

Article 14(4) of the Executive Regulation was amended to allow the FTA to deregister a person from VAT if a person initiated a deregistration application but did not complete the process.

The FTA may, for example, deregister a person who created a deregistration application in Emaratax and saved it as a draft without completing the process if the person continuously submitted nil returns or no returns because it stopped making taxable supplies.

Article 14(7) of the Previous Executive Regulation has been amended and renumbered as Article 14(5) in the New Executive Regulation. The amendment allows the FTA to determine the effective date of tax deregistration to be different from the date requested in the tax deregistration application by the registrant, or the date on which the tax deregistration request was submitted.

Article 14(9) has been added in the New Executive Regulation to confirm that tax deregistration does not absolve a person from complying with the provisions of the Decree-Law and its Regulation, including filing another tax registration application when the tax registration requirements are met.

Tax deregistration to protect the integrity of the tax system – Article 14 (bis)

This new Article allows the FTA to deregister a registrant without a deregistration application being submitted, where allowing the person to continue being a registrant may prejudice the integrity of the tax system, if any of the following conditions are met:

• The registrant does not meet the tax registration requirements according to the provisions of the Decree-Law.

• The registrant has not applied for tax deregistration as specified under Article 21(1) of the Decree-Law, or the registrant has created a tax deregistration application with the FTA but has not completed such application.

• Any other conditions specified by the FTA.

The FTA is required to verify that the person is not eligible to be registered for tax before deregistering the person.

The person is still required to monitor their activities in the UAE and will be required to apply for registration if the person again becomes liable to register, e.g. if the person starts making taxable supplies in the UAE again and the mandatory registration threshold is exceeded.

Deregistration of a tax group registration or amendment thereof – Article 15

Article 15(1) of the Executive Regulation was amended by adding the term "any". Hence, if any of the cases listed in this clause applies, the FTA shall deregister the tax group.

Article 15(2)(a) of the Executive Regulation was amended to state that, in addition to the cases listed in Article 15(1) of the Executive Regulation, the FTA shall remove a member from a tax group if that member ceases to make taxable supplies.

The onus remains on the representative member of the tax group to inform the FTA when a member of the tax group is no longer eligible to be part of such tax Group and to apply for an amendment of the tax group.

Exception from registration – Article 16

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.

This could, for example, include where the person starts making standard rated supplies, receives concerned services or imports goods.

Telecommunication and electronic services – Article 23

The Arabic text of the preamble to Article 23(2) of the Executive Regulation was amended to clarify that electronic services means services that are delivered "automatically" over the internet or electronic network or electronic marketplace.

Accounting for tax on the profit margin – Article 29

Some of the Clauses were renumbered as a result of the introduction of a new definition for "purchase price" in Clause 5 of this Article.

According to Article 29(5) of the New Executive Regulation, the purchase price not only includes the purchase price of the good, but also costs and fees incurred to purchase the good.

Such "costs and fees" could include Customs duties, shipping, handling, wrapping and installation costs charged/re-charged by the seller of the good.

For example, if a taxable person purchases a machine for AED 10,000 from a non-registrant who also charges AED 1,000 for shipping fees and AED 500 for installation charges, the total "purchase price" for purposes of the profit margin scheme would be AED 11,500.

However, where the shipping fees, 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.

Zero-rating the export of goods – Documentary requirements – Article 30

Article 30 of the Executive Regulation was amended to ease the burden of proof in respect of the official and commercial evidence required to be retained by the supplier to substantiate the right to apply the zero-rate in the case of direct and indirect export of goods.

Article 30(1)(b) and Article 30(2)(b) of the Executive Regulation were amended to require the taxable person exporting goods (directly or indirectly) to retain any of the following combinations of documents to substantiate the eligibility to apply the zero-rate to the export of goods:

• A customs declaration, and commercial evidence that proves the export of the goods.

• A shipping certificate and official evidence that prove the export.

• If the goods are placed into a customs suspension regime in accordance with the GCC Common Customs Law, a customs declaration proving that the goods were placed under the applicable customs suspension regime.

Before 15 November 2024, the only accepted official evidence was an official export document issued by a Local Emirate's Customs Department to evidence goods leaving the UAE (i.e. exit certificate).

From 15 November 2024, according to Article 30(4)(a) of the Executive Regulation, official evidence shall now constitute any of the following:

• an export certificate (i.e. exit certificate) issued by the relevant Local Emirate's Customs Department after verifying that the goods left the UAE, or

• a clearance certificate issued by the relevant Local Emirate's Customs Department or by the competent authorities in the UAE, after verifying that the goods left the UAE, or

• any document or clearance certificate certified by the competent authorities in the country of destination confirming that the goods entered that country. The certification should be clearly reflected on the document, for example, an official stamp or seal. Furthermore, the document should be in Arabic or English, or a certified translation should be retained in one of these languages.

From 15 November 2024, according to Article 30(4)(b) of the Executive Regulation the term "commercial evidence" shall refer to the document issued by sea, air or land transport companies and agents, proving the transport and departure of goods from the UAE to a place outside the UAE, including any of the following:

• air waybill or air manifest, or

• sea waybill or sea manifest, or

• land waybill or land manifest.

The term "shipping certificate", which may be retained together with the official evidence in Articles 30(1)(b)(2) and 30(2)(b)(2) of the Executive Regulation, is defined in Article 30(4)(c) of the New Executive Regulation as a certificate issued by sea, air or land transport companies and agents, that proves the transfer and departure of goods from the UAE to outside the UAE, and may be regarded as an equivalent of commercial evidence where such evidence is not available.

The official and commercial evidence must still, on a stand-alone basis or in combination, identify the particulars required under Article 30(5) of the Executive Regulation to be accepted as official or commercial evidence.

It is important to note that the evidence to support the zero-rating of the export of goods must consist of the relevant combinations. If the exporter, for example, only retains a shipping certificate and a land waybill, the evidence requirements to zero-rate the export will not be met.

Article 30(6) of the Executive Regulation was amended to clarify that the FTA can decide to reject documents that do not sufficiently prove that the goods have exited the UAE. This could, for example, be the case where the text is not legible or the particulars required under Article 30(5) of the Executive Regulation cannot be determined based on the documents submitted.

For completeness, please note 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.

Zero-rating the export of services – Article 31

Article 31(1)(a)(2) of the Executive Regulation was amended to remove the term "personal" to clearly reflect that the export of services may not be zero-rated if it is supplied directly in connection with moveable assets located in the UAE at the time the services are performed.

The new Article 31(1)(a)(3) of the New Executive Regulation adds an additional condition for the zero-rating of exported services. The following services supplied to a non-resident do not qualify for zero-rating under this Article:

• Services supplied on goods (e.g. installation services) located in the UAE at the time the services are performed.

• The supply of a means of transport to a lessee who is not a taxable person in the UAE and does not have a tax registration number in an implementing state if the means of transport was in the UAE when it is placed at the disposal of the lessee.

• The supply of restaurant, hotel, and food and drink catering services actually performed in the UAE.

• Cultural, artistic, sporting, educational or any similar services performed in the UAE.

• The supply of services that are directly connected with real estate located in the UAE.

• The supply of transportation services (and transport-related services) where the goods or passengers are transported from the UAE.

• Telecommunication and electronic services used and enjoyed in the UAE.

Article 31(2) of the Executive Regulation was amended by replacing the term "a month" by "30 days". As such, the total number of days the non-resident recipient of services is present in the UAE during a rolling 12-month period should be considered to determine whether the non-resident is regarded as being "outside the UAE" at the time the services are rendered.

For example, in case of a supply of services provided throughout a year, if the non-resident recipient's director is in the UAE for more than 30 days during the 12 months period preceding the date of supply, the recipient is regarded as being in the UAE.

Generally, the export of services may not be zero-rated if the services are supplied to a non-resident and it is reasonably foreseeable that another person will receive the services in the UAE, unless the person in the UAE would be entitled to full input tax recovery.

Article 31(3)(b) of the Executive Regulation was amended to clarify that, if the other person is a government entity or charity that would be eligible for full input tax recovery in respect of that service under Article 57 of the Decree-Law, the service supplied to the non-resident may be zero-rated if all the conditions under Article 31(1) of the Executive Regulation are met.

Zero-rating international transportation services – Article 33

Article 33(1)(d) of the Executive Regulation was amended to clarify that the domestic transportation of goods as part of an international transport service may only be zero-rated if the service is supplied by the same supplier that provides the international transport service.

For example, if a taxable person transports goods from Dubai to Mumbai via Abu Dhabi, the domestic leg between Dubai and Abu Dhabi would only qualify for zero-rating under Article 33(1)(d) of the Executive Regulation if both the domestic leg (Dubai to Abu Dhabi) and the international leg (Abu Dhabi to Mumbai) is supplied by the same taxable person.

The same tax treatment would apply if the supplier subcontracts a part of the transport service but remains contractually liable to the client for both the domestic and international transport of the goods.

In the above example, if the taxable person subcontracts the domestic leg of transportation to transport the goods from Dubai to Abu Dhabi, the supplier may zero-rate the supply, provided the supplier contractually remains liable for the entire transportation service and all the other relevant requirements for zero-rating are met.

However, if the client enters into an agreement with a supplier to only transport the goods from Dubai to the Abu Dhabi port, while engaging another transporter for the international leg (i.e. from Abu Dhabi to Mumbai), the domestic transport service would not qualify for zero-rating under Article 33 of the Executive Regulation.

The same principle will apply if a local transport company is subcontracted by an international transport company to only transport goods from a place in the UAE (e.g. Dubai) to another place in the UAE (e.g. Abu Dhabi). In this instance, the local supply to the international transport company of the transport service would not qualify for zero-rating but would be subject to 5% VAT if the local transport company is a taxable person.

Article 33(2) of the Executive Regulation was amended by removing reference to supplies treated as taking place outside the UAE. Hence, only goods and services with a place of supply in the UAE may qualify for zero-rating under Article 33(2) of the Executive Regulation, provided the other relevant requirements are met.

Article 33(2)(b) of the Executive Regulation was amended to clarify that, in the case of services supplied during the international transport, the zero-rating is limited to services supplied to the recipient of the transportation service.

Consequently, even if services are supplied in respect of an international transportation service and are provided during the course of such transport to a person other than the recipient of the international transportation service, the supply would not qualify for zero-rating under Article 33(2)(b) of the Executive Regulation.

Zero-rating certain means of transport ("qualifying means of transport") – Article 34

Article 34 of the Executive Regulation was amended to clarify that the zero-rating under Article 45(4) of the Decree-Law is not limited to the supply of qualifying means of transport but also applies to the importation thereof.

Clause 2 of this Article 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.

Consequently, 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 dredger. The supply or importation of such ship would, therefore, not qualify for zero-rating under Article 34 of the Executive Regulation, read with Article 45(4) of the Decree-Law.

Zero-rating goods and services in connection with means of transport – Article 35

The Clauses were renumbered to improve flow and to clearly distinguish 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.

Article 35(2) of the New Executive Regulation replaces Article 35(1)(b) of the Previous Executive Regulation and limits zero-rating in respect of services supplied directly in connection with a qualifying means of transport to the following:

• Repair services carried out on board of the qualifying means of transport.

• Maintenance services carried out on board the qualifying means of transport, including the cleaning, repainting, inspection and testing of the means of transport, their parts and equipment, as well as other similar services.

• Conversion of the means of transport, provided that, after the conversion process is completed, the means of transport continue to meet the conditions of Article 34 of the Executive Regulation to be regarded as a qualifying means of transport.

This would, for example, include an instance where an aircraft designed and used for commercial passenger transport is converted to transport commercial cargo, or vice versa.

The above services must be supplied directly in connection with the qualifying means of transport and for the purposes of operating, repairing, maintaining or converting the means of transport.

For example, the cleaning of a hangar in which a commercial passenger aircraft is stored, is not a service that is supplied directly in connection with that means of transport, even though keeping a clean storage environment may be a requirement for the proper maintenance of the aircraft.

Furthermore, the above services would also not qualify for zero-rating if supplied in respect of a vessel in the UAE at the time the services are rendered if the vessel does not qualify as a means of transport.

Residential buildings – Article 37

Article 37(2)(c) of the Executive Regulation was amended to clarify that a hotel apartment, a serviced apartment, or the like, are not regarded as residential buildings.

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

Zero-rating of buildings specifically designed to be used by charities – Article 38(2)

Article 38(2) of the Executive Regulation was deleted since the definition of "relevant charitable activity" was moved to Article 1 of the Decree-Law.

Zero-rating healthcare services – Article 41

Article 41(4) of the Executive Regulation was amended to clarify that not only a supply, but also an import of the goods referred to in that Clause may qualify for zero-rating.

Tax treatment of financial services – Article 42

The definition of "Islamic financial arrangement" was amended with the addition of a reference to "relevant laws". Consequently, the commercial laws governing transactions such as Ijarah, Murabaha and Salam should also be considered.

Article 42(2) of the Executive Regulation was amended by renumbering certain paragraphs as a result of adding the following new categories of financial services:

1. The management of investment funds, i.e. services provided for consideration by an independent fund manager to funds licensed by the relevant UAE competent authority, including the management of the fund's operations, the management of investment for or on behalf of the fund, monitoring and improvement of the fund's performance. This service is exempt from VAT under Article 42(3)(d) of the New Executive Regulation.

   Where the conditions for exemption are not met, (e.g. if the fund is not licensed by a competent authority in the UAE), the supply of the fund management services would be subject to VAT if the supplier of the service is a taxable person.

   Considering the above, fund managers need to consider whether they are still eligible to be registered for VAT or need to apply for deregistration.

2. The transfer of ownership of virtual assets, including virtual currencies (e.g. Bitcoin) and conversion of virtual assets. These services are exempt from VAT under Article 42(3)(e) of the New Executive Regulation if supplied on or after 1 January 2018. As this exemption is retroactive, i.e. effective from 1 January 2018, registrants must consider the impact on their historical VAT position.

   These types of transactions include, for example, the buying and selling of crypto currencies on an exchange.

   If the taxable person applied a different tax treatment, the person should consider whether a tax credit note should be issued (e.g. where 5% VAT was applied on the supply).

3. Keeping and managing virtual assets and enabling control thereof (e.g. managing crypto wallets). This financial service is taxable if supplied in the UAE for an explicit fee, commission or similar charge.

The term "virtual currencies" is used to refer to types of digital currencies other than the digital representation of fiat currency (e.g. AED). Crypto currencies are a subset of virtual currencies.

From a VAT perspective, crypto currencies are neither regarded nor treated as money.

It must be noted that that the mere listing of a financial service in Article 42(2) of the Executive Regulation is not sufficient to exempt such service from VAT as the exemptions are determined under Article 42(3) of the Executive Regulation.

Tax on supplies of more than one component – Article 46

A new paragraph was added to Article 46(1) of the Executive Regulation to clarify that, where a single composite supply is made which does not contain a principal component, the tax treatment is based on the general nature of the supply as a whole.

Input tax recovery in respect of exempt supplies – Article 52

Article 52(2) of the Executive Regulation was amended to align with the previous amendment to Article 31(2) of the Executive Regulation relating to presence in the UAE. The word "or" has been replaced with "and".

Consequently, 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.

Non-recoverable input tax – Article 53(1)(c)

Employers are, generally, not entitled to recover input tax incurred to provide free goods or services to employees for their personal benefit, unless one of the exceptions under Article 53(1)(c) of the Executive Regulation applies.

The sub-clauses of Article 53(1)(c) of the Executive Regulation were renumbered to accommodate the new exception relating to medical insurance supplied to employees.

Article 53(1)(c)(3) of the New Executive Regulation allows VAT registered employers to recover VAT incurred to provide health insurance to their employees and employees' families (if applicable), regardless of whether there is a legal obligation to provide such health insurance or not.

The health insurance can be provided directly, or indirectly through a health insurer, and includes health insurance top-ups.

For purposes of this exception, the term "family" is limited to a husband, one wife and up to three children younger than 18 years.

For example, if the employer pays the health insurance premium for an employee, his two wives and their children aged 18, 17, 15, 10 and 6, the employer may only recover the input tax incurred on the premium to the extent it relates to the employee, one of his wives and three of the children that are younger than 18 years.

The portion of the VAT on the health insurance premium that relates to the employee's other wife, the child that is 18 years old, and one more child younger than 18 years old, is not recoverable.

For completeness, kindly note that this amendment is only effective from 15 November 2024 and shall not be applied retrospectively.

For example, if the employer paid health insurance premiums in January 2024 in respect of the full calendar year, only the VAT incurred on the portion relating to the period 15 November to 31 December 2024 may be recovered to the extent the employer incurs these costs to make taxable supplies, and provided the relevant supporting documents are retained.

For completeness, note that, according to Article 53(1)(c)(1) of the Executive Regulation, employers may recover input tax in respect of medical insurance if there is a legal obligation on the employer to provide such insurance, if it may not be recovered under Article 53(1)(c)(3) of the Executive Regulation.

Apportionment of input tax – Article 55

Various changes were made to Article 55 of the Executive Regulation that resulted in a renumbering of some clauses.

The main changes were the specification of special cases for ending a tax year, and the introduction of a specified recovery percentage.

A new Clause 4 was introduced to specify that the following special cases trigger the end of a tax year:

• Tax deregistration - the tax year ends on the last day on which the person was a taxable person.

• Joining a tax group - the tax year ends on the last day before the taxable person joins the tax group, i.e. the day before the effective date of the relevant tax group amendment.

• Leaving a tax group - the tax year ends on the last day before the member left the tax group, i.e. the day before the effective date of the relevant tax group amendment.

Article 55(6) of the New Executive Regulation (previously Clause 5) clarifies that the standard input tax apportionment methodology also applies to government entities and charities (as defined in Article 1 of the Decree-Law) by adding reference to Article 57 of the Decree-Law.

Even though Article 55(6)(a) of the Previous Executive Regulation was amended by Article 55(7)(a) of the New Executive Regulation to refer to the "sum of input tax for the tax period", the simplified calculation referred to in the Input Tax Apportionment VAT Guide ("VATGIT1") should still be used.

Article 55(12) of the New Executive Regulation clarifies that the AED 250,000 threshold in Article 55(11) to determine whether an actual use adjustment is required, should be apportioned on pro-rata basis if the tax year is shorter than 12 months.

For example, if a company joins a tax group five months after its tax year, an actual use adjustment would be required in its final return before joining the tax group where the variance between recoverable input tax determined under the annual washup and the actual use method exceeds AED 104,166.67 (250,000 x 5/12).

Article 55(13) of the New Executive Regulation grants the FTA the right to require a taxable person to apply for a specific apportionment method, considering the nature of the taxable person's business and transaction types.

For example, if the FTA finds during an audit that a financial institution is using the standard input tax-based apportionment method although the taxable person has multiple sectors, including real estate, retail banking and investment banking, the FTA may require that the taxable person apply to use the sectoral apportionment method.

In addition to the above, from 15 November 2024, taxable persons may apply to use a specified recovery percentage to apportion the input tax incurred to make both taxable and exempt supplies.

Subject to FTA's approval, this means that a specified recovery percentage is determined based on the recovery rate at the end of the preceding tax year and applied to the following tax periods for the current tax year, instead of calculating an apportionment rate for each tax period.

The calculation of the specified recovery percentage should be performed for each tax year while the FTA approval is valid.

The specified recovery percentage is determined on the following basis:

• If the nature of business of the registrant is such that a special apportionment method prescribed by the FTA may be applicable to that business, and there is approval from the FTA to use such method, the specified recovery percentage should be the preceding tax year’s calculated recovery rate based on the relevant special method.

• If the nature of business of the registrant is such that a special apportionment method prescribed by the FTA may be applicable to that business, but the registrant has not applied to use such special method, the application should be for a specified recovery percentage based on the relevant special method.

• If the nature of business is such that none of the special apportionment methods can be applicable to the business, the specified recovery percentage is the preceding tax year’s calculated recovery rate-based rate, that is calculated based on the standard apportionment method.

The application to use a specified recovery percentage can only be made where the registrant has been registered for VAT for at least a tax year.

An approval to use the specified recovery percentage will be valid for 4 years and the registrant will not be allowed to change the method for at least 2 years following the approval.

Adjustments under the capital assets scheme – Article 58

Article 58(17) of the New Executive Regulation was introduced to clarify that, for an internally developed capital asset, the first tax year shall be the year in which that asset is brought into use, even if the capital asset was ready for use in a prior year.

Tax invoices – Article 59

The Article on tax invoices was amended to include several requirements and clarifications.

In general, Article 59 of the Executive Regulation was amended to refer to a "registrant" instead of a "taxable person" as only registrants have TRNs and, therefore, only registrants can issue tax invoices, including summary tax invoice.

Article 59(2)(e) of the Executive Regulation clarifies that the total consideration and the VAT amount reflected on a simplified tax invoice must be expressed in AED.

According to the amended Article 59(5) of the Executive Regulation, simplified tax invoices are not allowed in instances where the reverse charge mechanism is applied under Article 48 of the Decree-Law, e.g. concerned services.

Hence, the recipient of concerned services is required to issue full tax invoices complying with Article 59(1) of the Executive Regulation in these instances, unless an administrative exception was approved by the FTA.

According to the amended Article 59(7) of the Executive Regulation, administrative exceptions may also be granted to except a registrant from having to deliver tax invoices, subject to the conditions the FTA considers necessary.

Article 59(11) of the Executive Regulation was amended to clarify that the following documentary evidence is required where a registered agent makes supplies for and on behalf of the principal of that supply and the agent issues the related tax invoice:

• the agent must retain sufficient records to determine the name, address and TRN of the principal supplier, and

• the principal supplier must retain sufficient records to determine the name, address and TRN of the agent.

Registrants are, generally, required to issue the relevant tax invoice within 14 days from the date of supply determined under Article 25 or 26 of the Decree-Law.

As an exception to the above, Article 59(13) was inserted in the New Executive Regulation that stipulates other periods within which tax invoices must be issued in the following cases:

• simplified tax invoices must be issued on the date of supply, and

• summary tax invoices, where applicable, must be issued and delivered to the recipient of the supply within 14 days from the end of the calendar month in which the date of supply of such supplies occurred.

Article 59(14) has been inserted in the New Executive Regulation to clarify that the FTA may withdraw an administrative exception decision relating to tax invoices if the conditions under which the exception was granted are not met.

Article 59(15) has been inserted in the New Executive Regulation to allow the FTA to specify the cases in which full tax invoices are required even though the requirements for being eligible to issue simplified tax invoices are met.

Tax credit note – Article 60

Article 60(1)(e) of the Executive Regulation was amended to clarify the treatment of multiple tax credit notes issued in respect of the same tax invoice.

In such instances, the "value of supply shown on the tax invoice" in the subsequent credit note is the adjusted value according to the previous tax credit note.

For example, if a taxable person sold goods for AED 105 (including VAT), issued tax credit note for AED 21 (including VAT), and subsequently issued another tax credit note in relation to the same tax invoice, the "value of supply shown on the tax invoice" should be reflected as AED 80 (AED 100 – AED 20).

According to the amended Article 60(2) of the Executive Regulation, administrative exceptions may also be granted to allow registrants not to deliver tax credit notes, subject to the conditions the FTA consider necessary.

Article 60(6) of the Executive Regulation was amended to clarify that the following documentary evidence is required where a registered agent makes supplies for and on behalf of the principal of that agent, and the agent issues a tax credit note in respect of such supply.

• the agent must retain sufficient records to determine the name, address and TRN of the principal supplier, and

• the principal supplier must retain sufficient records to determine the name, address and TRN of the agent.

Tax return and payment – Article 64

Article 64(5)(j) of the Executive Regulation was amended to refer not only to "payable tax" but also "excess tax" to clarify that the net VAT position per tax period can be positive (i.e. an amount payable to the FTA) or negative (i.e. in favour of the registrant)

The term "excess tax" refers to the amount by which the "total value of recoverable tax for the period" (Box 13) exceeds the "total value of due tax for the period" (Box 12) per the VAT return.

Tourist visitors – Article 68

An amendment was made to Article 68(2)(c) of the Executive Regulation to align time periods with Paragraph (b), i.e. the goods must be exported by the overseas tourist within 90 days from the date of supply, instead of within 3 months.

Foreign governments – Article 69

Article 69 of the Executive Regulation was restructured and renumbered to list the conditions for requesting the repayment of VAT incurred by foreign governments, international organisations, diplomatic bodies and missions, or by an official thereof.

The conditions are similar to the conditions previously reflected, with the addition of a time limit of 36 months for officials to submit their claims, unless another period is specified in an international treaty or other agreement in-force in the UAE.