UAE Publishes Updated VAT Rules

The UAE Cabinet Decision No. 100 of 2024 significantly amends the Executive Regulation of the Federal Decree-Law No. 8 of 2017 on Value Added Tax (the “VAT Law”).

The Executive Regulation (the “Regulation”), initially issued in 2017, is the principal document clarifying the practical aspects of VAT in the UAE. The revised version of the Regulation comes into force on 15 November 2024.  

We bring to your attention an overview of the key changes that VAT taxpayers in the UAE should consider.

New requirements for voluntary registration for VAT 

A person can voluntarily register for VAT if the total value of his taxable supplies has exceeded 187,500 AED (or approximately 51,000 USD) during the previous 12-month period or is expected to exceed the threshold within the nearest 30-day period. 

Under the new rule, a person who applies for voluntary VAT registration must prove to the Federal Tax Authority that he:

• is carrying on a business in the UAE, and
• intends to make VAT-taxable supplies in the UAE or supplies outside the UAE which would be taxed or exempt from VAT had they been made within the UAE.

Without such evidence, the FTA may deny voluntary registration for VAT (article 8(6) of the Regulation). 

New requirements for VAT deregistration

1. Additional requirements have been introduced for taxpayers applying for VAT deregistration (articles 14(7) to 14(9) of the Regulation):

• The taxpayer must pay all tax and administrative penalties due and submit the final VAT tax return;
• Goods and services forming part of the assets of the taxpayer’s business are deemed to be supplied by him at a time immediately before his tax deregistration, and any VAT due thereon must be included in the final tax return;
• VAT deregistration does not release a person from further compliance with VAT requirements, particularly the obligation to re-register for VAT when such registration is mandatory.   

2. The Federal Tax Service is now empowered to deregister a taxpayer proactively. The FTA can exercise this power if, in its opinion, the continued registration of the person for VAT would be likely to “prejudice the integrity of the tax system”, including cases where the taxpayer no longer meets the requirements necessary for VAT registration (article 14bis of the Regulation).    

New conditions for applying the zero VAT rate on the export of services

1. Under the general rule, where the recipient of services has no place of residence in the UAE and is outside the UAE when services are performed, the export of services will be zero-rated.

However, according to article 31(1)(3) of the Regulation, the zero VAT rate will not apply to the export of services if the services are treated as being performed in the UAE (or in a designated zone in the UAE) under special rules of articles 30(3) to 30(8) and 31 of the VAT Law. 

The services subject to such special rules of determining the place of supply include:  

Services	Place of supply for VAT purposes
Services related to goods (such as installation of goods)	The place where the services were actually performed.
Hotel, restaurant and catering services
Cultural, sporting, educational and other similar services
Services related to immovable property	The place where the immovable property is located.
Transportation services	The place where the transportation starts.
Telecommunication and electronic services	The place of use and enjoyment of the services, regardless of the place of contract or payment.

2. A person (a recipient of services) is considered to be “outside the UAE” if they have been in the UAE for less than 30 days and their presence is not effectively connected with the supply of the service (article 31(2) of the Regulation).

Therefore, to apply a zero rate, the service provider has to assess the duration and purpose of their clients’ presence in the UAE.  

Simplification of requirements for exporters’ documentation

The direct export of goods is zero-rated if the goods are physically exported to a place outside the GCC countries, and the exporter retains any of the following documents (article 30 of the Regulation):

1. A customs declaration and commercial evidence that proves the export (an air, sea or land waybill or a cargo manifest) or
2. A shipping certificate and official evidence that proves the export (an export certificate or a clearance certificate issued by the UAE customs authorities) or
3. A customs declaration that proves the suspension arrangement of customs duties if the goods are put into customs suspension.

Therefore, obtaining an official exit certificate will not be required to confirm the export of goods for VAT purposes. Currently, it is necessary as part of the established practice. 

Virtual assets

1. Under the definition introduced in the Regulation, virtual assets mean digital representation of value that can be digitally traded or converted and can be used for investment purposes and does not include digital representations of fiat currencies or financial securities (article 1 of the Regulation).  

2. The following positions have been added to the definition of financial services (articles 42(2)(k) to (m) of the Regulation): 

• The transfer of ownership of virtual assets, including virtual currencies.
• The conversion of virtual assets.
• Keeping and managing virtual assets and enabling control thereof.

3. The transfer of ownership of virtual assets, including virtual currencies, and the conversion of virtual assets are exempt from VAT (article 42(3)(e) of the Regulation). The exemption applies retroactively starting from 1 January 2018.

Investment fund management services

The definition of financial services has been expanded to include the management of investment funds (article 42(2)(j) of the Regulation). 

The management of investment funds means “services provided by the fund manager independently for a consideration, to funds licensed by a competent authority in the UAE, including but not limited to management of the fund’s operations, management of investments for or on behalf of the fund, monitoring and improvement of the fund’s performance”. 

According to article 42(3)(d) of the Regulation, investment fund management services are exempt from VAT. 

The definition of supply of real estate 

1. The amendments expand the definition of supply of real estate. The supply of real estate now means not only the lease or sale but also any other forms of disposal causing the transfer of ownership of the real estate from one person to another (article 2(4)(b) of the Regulation).

2. The transfer of the right to use, exploit or utilise the “government buildings” made between “government entities” is not considered a supply (article 3bis of the Regulation).

VAT recovery issues  

1. Under the general rule, a taxpayer cannot recover the input VAT for goods or services (including entertainment services) he purchased to be used by employees for no charge to them and for their personal benefit. 

However, input VAT can be recoverable if the taxpayer provides health insurance, including enhanced health insurance, to his employees and their family members (a husband or wife and up to three children under 18 years) (article 53(1)(c) of the Regulation).

2. Instead of calculating the recoverable input VAT in the usual way, the taxpayer may apply to the FTA to approve calculating it in any tax period based on the recovery percentage of the preceding tax year (article 55(16) of the Regulation). 

Actions to take 

It is recommended that VAT-taxable UAE companies analyse the impact the amendments may have on their operations and VAT obligations.

In particular, exporters of services should ascertain whether they retain the right to the zero VAT rate, considering the provisions regarding the place of supply of services and the customers’ location.

Virtual asset service providers and investment fund managers should assess whether their services qualify for VAT exemption under the new rules and consider any necessary changes to their taxable operations.