UAE - New Public Clarification on the amendments to the Executive Regulations

18 March 2025 – The Federal Tax Authority (FTA) in the United Arab Emirates (UAE) has released its Value Added Tax (VAT) Public Clarification VATP040 on Amendments to the VAT Executive Regulation. In this alert, we have outlined the key takeaways.

Background

Amendments to the UAE VAT Executive Regulations were published in the Official Gazette (No.783) dated 16 September 2024. The notification email from the Official Gazette was circulated on 2 October 2024 and the changes became effective on 15 November 2024. To provide more clarity, the FTA published a Public Clarification on the amendments on 14 March 2025.

Key Takeaways

1. Financial services – VAT exemption

The Public Clarification provides some insights into the amendments to Article 42 of the Executive Regulation, which addresses the tax treatment of financial services, including Islamic financial arrangements and new categories of financial services.

The definition of "Islamic financial arrangement" now includes a reference to "relevant laws". This means that commercial laws governing transactions such as Ijarah, Murabaha, and Salam must be considered in determining these arrangements' tax treatment.

Article 42(2) has been amended to include new categories of financial services. It is crucial to note that merely listing a financial service under article 42(2) is not sufficient to exempt it from VAT. The determination of exemptions is governed by Article 42(3). 

The FTA has additionally confirmed the following:

• Management of investment funds:
  
  • Services provided by independent fund managers for funds licensed by UAE authorities, including operations management, investment management, and performance monitoring, are exempt from VAT.
  • If the conditions for exemption are not met (e.g., the fund is not licensed), such services are subject to VAT, and fund managers might need to reconsider their VAT registration status.
     
• Transfer of ownership and conversion of virtual assets:
  • This includes virtual currencies like bitcoin and conversion of virtual assets. These services are exempt from VAT retroactively from 1 January 2018.
  • Taxable persons must assess the historical VAT implications if they applied different tax treatments previously, such as issuing tax credit notes where 5% VAT was incorrectly applied.
     
• Keeping and managing virtual assets:
  • Services related to keeping and managing virtual assets (e.g., managing crypto wallets) are taxable if supplied in the UAE for an explicit fee, commission, or similar charge.
  • The term "virtual currencies" refers to types of digital currencies other than the digital representation of fiat currency.
  • Crypto currencies are a subset of virtual currencies and from a VAT perspective are not regarded nor treated as money.

2. Clarifications on changes to export documentation requirements

The Public Clarification has now shed light on the amendments to Article 30 of the Executive Regulation, intended to simplify the proof requirements for suppliers applying the zero-rate for exporting goods directly or indirectly.

The amendments now enable taxable persons exporting goods to retain any of the below documentation:

• Customs declarations and commercial evidence proving export.
• Shipping certificates and official evidence proving export.
• For goods under customs suspension according to GCC Common Customs Law, customs declarations confirming suspension status.

From 15 November 2024, expanded forms of official evidence include:

• Export certificates issued by local customs departments after verifying goods have left the UAE.
• Clearance certificates from local customs or competent UAE authorities.
• Certified documents from authorities in the destination country confirming goods' entry. These must clearly show official stamps or seals and be in Arabic or English or have a certified translation.

Note that exports before 15 November 2024 remain subject to the previous documentary evidence requirements of Article 30 prior to amendment, ensuring compliance during the transition period. That being said, a customs declaration and an exit certificate are still required as proof of exports prior to 15 November 2024.

These amendments, as clarified in the new Public Clarifications, aim to streamline the documentation process for suppliers, making it simpler to apply the zero-rate for exports.

3. Zero rate for services and means of transport

Export of services

Amendments to Article 31 of the Executive Regulation refine the criteria for zero-rating the export of services.

Article 31(1)(a)(2) has been amended to remove the term "personal," clarifying that services directly connected to moveable assets located in the UAE at the time of service do not qualify for zero-rating.

New conditions for zero-rating specify that the following services do not qualify:

• Services on goods in the UAE, such as installation.
• Supply of a means of transport to non-taxable lessees in the UAE.
• Restaurant, hotel, and catering services performed in the UAE.
• Cultural, artistic, sporting, educational, or similar services performed in the UAE.
• Services directly connected to real estate in the UAE.
• Transportation services where goods or passengers are transported from the UAE.
• Telecommunication and electronic services used in the UAE.

It should be noted that Article 31(2) has been amended to replace "a month" with "30 days," specifying that the total number of days a non-resident recipient is in the UAE over a rolling 12-month period should be considered to determine their status as "outside the UAE". Following the practical example from Public Clarifications, if a non-resident recipient's director is in the UAE for more than 30 days during the 12 months preceding the service supply date, the recipient is considered to be in the UAE.

International transportation services

The Public Clarification provides detailed explanation and examples regarding the VAT treatment of international transportation services. Domestic transportation of goods, as part of an international transport service, can be zero-rated only if supplied by the same entity handling the international leg.

Additionally, zero-rating during international transport is specifically tied to services provided directly to the transport service recipient. Services relating to international transportation that are supplied to others do not qualify for zero-rating. These clarifications ensure that zero-rating is applied rigorously and only under the specified conditions for transportation services within Article 33.

 4. Non-recoverable input tax

The Public Clarification clarified that the new exception introduced under Article 53, allowing VAT recovery on health insurance provided to employees and their families, regardless of legal obligations does not have retroactive effect.If premiums covering the entire year were paid in January 2024, VAT recovery is allowed only for 15 November to 31 December 2024, assuming that the costs relate to taxable supplies and supporting documents are kept.

Employers obliged by law to provide health insurance can still recover input tax, even if not under the new exception.

5. Apportionment of input tax

It is now clarified that the standard input tax apportionment applies to government entities and charities. Despite amendments to specify the sum of input tax for the tax period under Article 55(7)(a), the simplified input tax apportionment method detailed in VATGIT1 remains applicable. 

Other changes

More clarifications have been published for the updated VAT Executive Regulation. Below a non-exhaustive list of topics which have been clarified:

• New definitions: Definition of “virtual assets” now includes cryptocurrencies but excludes digital representations of fiat currency. Introduction of “business day” to align with the Tax Procedures Law.
• Tax invoice requirements: Among others, new timelines for issuing summary tax invoices (14 days from end of relevant calendar month) and new conditions for invoices issued by agents on behalf of the principal.
• Input VAT recovery: New rules to calculate the input VAT recovery entitlement, for example if the tax year is less than 12 months or if a tax group changes. Additionally, an option to apply for a fixed input tax recovery rate has been introduced.
• Composite and deemed supply rules: Amendments to determine the VAT treatment of a supply which consists of multiple elements. Clarification of the values for deemed supply rules.
• Profit margin scheme: The definition of “purchase price” has been clarified to includes all costs and fees incurred in addition to the price of the goods.
• Tax registration cancellation and deregistration: The FTA has the authority to cancel a VAT registration of a taxpayer under certain circumstances (e.g., registration requirements not met). The FTA can now deregister entities that have applied but not completed deregistration or no longer meet VAT registration conditions.

Implications and next steps for businesses

It is important for all taxpayers to familiarize themselves with the changes and clarifications published and assess the impact on their business. The changes have already come into effect on 15 November 2024, and now the FTA expects businesses to follow the clarifications issued. It is crucial to take prompt action and ensure you comply with the changes.

Businesses should conduct an internal review to identify whether they comply with the updated Executive Regulation and Public Clarification. They should then update their relevant systems and processes to incorporate the necessary adjustments for compliance.

How Deloitte can help

Deloitte offers a range of services to assist businesses in effectively managing the implications of the updated VAT Executive Regulation. We can provide in-depth analysis and guidance on compliance requirements, helping you understand the specific implications for your business. Additionally, we can support to raise awareness internally and build the necessary knowledge within your organization. Please reach out to your trusted Deloitte advisor if you would like to discuss the impact of the amendments on your business and how you can prepare for these changes.

Notice

The above is only a brief summary of the current update, is valid at the time of circulation and is based only on information currently available in the public domain which is subject to change. This alert has been written in general terms and does not constitute any form of advice or recommendation by Deloitte and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon the particular circumstances involved and we highly recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this publication. Deloitte accepts no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication.

Deloitte and Touche Middle East would be pleased to advise readers on how to apply the principles set out in this publication to their specific circumstances.