Cabinet Decision No. 100/2024, issued by the Federal Tax Authority, introduced amendments to the Value Added Tax (VAT) Executive Regulations under Federal Decree-Law No. 8/2017. This article explains VAT exemptions in line with the latest VAT law amendments.
Expansion of Financial Services Exemption
The scope of financial services covered under Article 42 of the VAT Law has undergone revisions, particularly concerning investment and digital asset transactions. The key modifications include:
| Investment Fund Management Services: | Virtual Assets and Cryptocurrencies: | Management and Safeguarding of Virtual Assets: |
| The scope now clearly refers to a charge for managing investments in funds held by a legal entity licensed for this purpose in the UAE.
Services covered include managing fund operations, handling investments for the benefit of the fund, and overseeing fund performance enhancements. |
The transfer of ownership as well as the exchange of virtual assets, including cryptocurrencies, will be exempted from VAT, with retrospective application from January 2018.
The amendment establishes that "virtual assets" refer to a digital representation of value that can be electronically traded or transferred and utilized for investment, explicitly excluding fiat currencies and securities. |
These services are regarded as financial services but are VAT exempted as long as they are not provided through fees, commissions, or discounts. |
The scope of covering a digital asset within the exemption of VAT shows the increasing prominence of cryptocurrency and blockchain-based transactions within modern day financial markets. Businesses dealing in digital asset transactions are advised to reconsider their tax liabilities due to alterations made by the regulatory framework.
Read More: Ownership Provisions in Tax Groups
Zero-Rating Export of Goods – Documentation Requirements
In order to apply zero-rating to VAT, a business must furnish certain records which include:
| Customs declarations and other supporting commercial documents that substantiate the export. | Bills of lading and or official export verification documents of competent authorities. | A customs declaration about the goods under a customs regulation. |
Documentation Requirements for VAT Zero-Rating
| Commercial Evidence: | A document issued by transport companies such as airway bill, sea waybill and land manifest that prove the goods physically left the UAE. |
| Shipping Certificate: | It is a document that transporters issue if no commercial evidence is available. |
| Official Evidence: | Export or clearance certificates issued from the customs authority in the UAE or the destination country, confirming that the goods have officially entered the jurisdiction |
These clarifications aid in ensuring that businesses exporting goods pay due regard to standard documentation, thereby mitigating compliance risks and disputes with tax authorities.
Zero-Rating of Services and Transport
| Export of Services: | International Transportation Services: | Means of Transport: | Goods and Services for Transport: |
| Services covered by the special place of supply rules in Articles 30 and 31 are no longer eligible for zero rating under Article 31, which now applies only to exempt services.
Real estate, transportation, and hospitality services are excluded. |
Zero rating for supply of services of transportation of goods to and from international locations to and from the UAE is applicable only when the service was rendered by the same supplier for transportation. | Zero rating was widened to include import of means of transport thereby providing concession to companies doing transport business. | The following are now included with all the zero-rated services:
services of “operating, repairing, maintaining, or converting” means of transports |
Read more: Difference Between Zero Rated VAT and Exempted VAT
Changes to Input VAT Recovery
| Extended Recovery Eligibility: | For foreign supplied services in the country, the recovery of input VAT will apply on services that would have qualified for VAT recovery in the UAE. |
| Financial Services Outside UAE: | For all financial services supplied in a country outside the UAE, recovery of input VAT will be accepted. |
| Determining Residency Status for VAT: | An individual is still considered as outside the country if the duration of the stay within the UAE is less than one month and not for the purpose of supply. |
| Medical Insurance VAT Recovery: | Employers are now able to recoup VAT expenses incurred on medical insurance coverage for employees plus their family members so that VAT treatment matches labor law requirements. |
Exemptions for Government Entities
New approaches in article 3 suggest certain dealings between government bodies as not constituting the taxable supplies under VAT. This includes but not limited to:
| The vesting of ownership or other rights to government real estate as well as other infrastructure development projects. | Exploitation of such assets for government bodies is permitted |
Additional Amendments
Some other significant amendments have also been made.
| Redefining "Supply of Goods": | Voluntary VAT Registration | VAT Group Membership | Profit Margin Calculation: | Composite Supplies: | Tax Invoice Issuance Adjustments |
| The concept has been expanded to refer to any form of disposal that leads to a change of ownership other than sale and lease agreements. | An applicant must demonstrate a reasonable readiness to carry out taxable activities which justify registration. | Within the group, members of a VAT Group will have class membership as long as they are making taxable supplies. | Profit margin will be measured from the purchase price which includes costs or expenses incurred in acquisition of commodities by the taxpayer. | Profit margin will be measured from the purchase price which includes costs or expenses incurred in acquisition of commodities by the taxpayer. | Article 59 brings changes to the effective date of issuing tax invoice for certain transactions. |
Conclusion
Businesses are advised to seek the expert services of reputable Tax Consultants in UAE such as Tax Consultant Dubai to effectively ensure compliance with the UAE VAT law. Contact us today and we shall be glad
