VAT or Value Added Tax in UAE was first introduced in UAE on January 1st, 2018. This year (January 2023) the VAT in UAE have been in effect for five years. The VAT legislation has undergone several revisions throughout the years, including additional articles and decrees. To be a resident of UAE who complies with all the VAT laws, avoid fines, and run afoul of the law, it’s imperative to be informed of the latest developments.
The tax rules and the way taxes are handled will change significantly more in 2023. In this blog we will discuss the five major changes in the UAE’s VAT law that every business owner must be aware of in depth and detail.
UAE VAT LAW CHANGE 1 – EXTENSION IN TIMELINE FOR TAX AUDITS
Typically, in UAE when five years have passed after the conclusion of a monthly or quarterly tax period, a tax audit cannot be conducted. The FTA can conduct a tax audit or issue a tax assessment longer than five years after the end of a tax period under the new UAE VAT law changes only if they notify the taxpayer of the audit before the end of the five-year window and either finish the audit or do so within four years of the date they did so. The FTA now has a significant amount of time to initiate a tax audit.
UAE VAT LAW CHANGE 2 – TIMELINE FOR THE ISSUANCE OF TAX INVOICE OR CREDIT NOTE
The excess output tax that was imposed on a tax invoice may be recovered by the supplier from the FTA in certain circumstances, such as discounts, returns of sales, cancellation of sales, etc. The supplier must provide the purchaser with a tax credit notice, and the purchaser/recipient is required to reverse the proportional input tax credit that was claimed on the initial invoice. Supplies that contain recurring payments or a series of invoices must now be made within the 14-day window from the date of supply in order to be considered genuine. In the past, the UAE VAT Decree Law did not provide a time restriction for the issue of a tax invoice in these situations.
The Amended Decree Law also adds a 14-day deadline for the issue of a compliant tax credit note in one of its articles. Before, there was no time restriction on when a tax credit note could be issued.
UAE VAT LAW CHANGE 3 – CERTAIN GOODS TO BE SUBJECT AT A ZERO-RATE
The revised UAE VAT Decree Law now includes more items that are exempt from paying VAT. This comprises the supply or import of land, sea, and air transportation systems for the movement of people and products. The supply or importation of planes or boats for air or sea rescue and aid is also mentioned in this change.
UAE VAT LAW CHANGE 4 – TAX AUDIT TO BE CONDUCTED IN THE CASE OF TAX AVOIDANCE
Additionally, new tax regulations will take effect on January 3, 2023. Even if a mistake or omission does not impact the amount of net tax owed that was declared in the original VAT return, taxpayers would still be obliged to file a voluntary disclosure to remedy it.
A taxpayer who failed to record zero-rated supplies, exempt supplies, or imports of goods or services subject to a reverse charge may be covered by this amendment. If a voluntary disclosure is made, fines for the initial VAT returns’ mistakes may also be imposed.
Also, within 15 years after the end of the tax period during which the tax evasion occurred or the period on which the taxable person was due to complete tax registration, the authority may undertake a tax audit or issue a tax assessment in the case of tax evasion or failure to perform tax registration.
UAE VAT LAW CHANGE 5 – REDUCTION IN PENALTIES AND FINES
The maximum administrative penalties will be 200 percent of the tax amount rather than 300 percent commencing January 1, 2023, as part of amendments to the UAE VAT legislation.
The Federal Tax Authority (FTA) claims that the minimum penalty barrier of Dh500 would also be eliminated, enabling the FTA to issue fines that are less than Dh500.
It is noted that numerous Articles of the VAT Law have been revised. Some of these will significantly affect how businesses are currently handling their VAT obligations. The addition of a new article on the statute of limitations, the deadline for the issuance of a tax credit note, the deadline for the issuance of a bill for ongoing supplies, the definition of hydrocarbons, the valuation of a deemed supply in the case of related parties, etc. are a few of these. Consult vat registration UAE experts for more details.
Although certain adjustments won’t have a significant influence on the VAT positions previously established, they are included to add clarification. These amendments relate to phrasing changes, combining all relevant laws in one location, etc., which are irrelevant to many businesses.