New VAT Rules in UAE (2023)

The updated UAE VAT regulations must be known by businesses. With effect beginning in January 2023, new amendments to the UAE VAT decree law have been issued. Below is a summary of the key amendments to the VAT Law that will take effect on January 1, 2023:

1.Extended time for a Tax Audit

It is normally not permitted to undertake a tax audit for a monthly or quarterly tax period after five years have passed since the end of such tax period. However, if a taxpayer has received notice that a tax audit is starting during those five years, the audit itself may begin and/or be finished within the following four years of the taxpayer’s receipt of the notice.

2.Tax audit after Voluntary Disclosure

The FTA will have an additional year to perform a tax audit if a voluntary disclosure for a monthly or quarterly tax period is submitted in the fifth year following that tax period. In essence, the extra time will make sure that FTA has enough time to process the voluntary disclosure and carry out further audits in response to such disclosures

3.Tax Evasion

After the conclusion of the tax period during which the tax evasion occurred, a tax audit may be carried out in cases of tax evasion. According to the definition of tax evasion, using illegal methods to reduce the amount of tax due, avoid paying it, or gain a refund while otherwise ineligible is considered tax evasion, regardless of whether the person is registered or not

4 . Failure to obtain VAT registration

People frequently think that if they don’t register for VAT, the tax authorities won’t find out about them. Within 15 years of the date on which the person should have been registered, the FTA may launch a tax audit if the person fails to get a tax registration. We had previously talked about the registration mistakes caused by companies producing zero-rated products. Businesses should reevaluate whether they need to register for VAT.

5. Good news for 100% exporters

In the same Tax Conversation, we also covered how the law does not require businesses to burden their owners with ongoing VAT compliances if all of their supplies are zero-rated. These companies have the opportunity to ask for a VAT registration exemption.Companies that were already registered for VAT but were unaware of this advantageous option had to keep up with their regular VAT compliances.Businesses that have already registered for VAT may also request an exception after January 1, 2023.

6.  Additional compliance for input credit on import of service

Many businesses pay foreign service providers for their services based on agreements rather than forcing them to generate invoices. Since the VAT laws have recently changed, the taxpayer can only claim input credit for services imported provided they receive and keep the invoices in line with the VAT legislation.

7.  Construction sector and retention payments

VAT may still become due if more than a year passes between successive milestones of delivery of goods or services and retention payment claims.There is now an additional particular date of supply for VAT purposes, which is one year from the date the goods or services were given.

8.  Deemed supplies to related parties

Deemed supplies such as supply of goods on FOC (free of cost) to related parties could have earlier triggered a VAT liability under the existing laws.As per the amended VAT laws, a company may not have a VAT liability on FOC goods/services to related parties if the recipient company is otherwise entitled to recover 100% input credit on its purchases.

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