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UAE to introduce amendments to VAT regime from January 1 2023

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Staff Writer, TLR

Published on July 14, 2023, 17:41:00


VAT commonly known Value Added Tax general consumption tax

VAT, commonly known as Value Added Tax; is a general consumption tax which is an indirect tax. Countries impose VAT on the majority of supplies of goods and services that are bought and sold, making it one of the most common types of consumption tax found worldwide. Value Added Tax (VAT) was implemented in the UAE in January 2018 at a rate of 5%.

The Ministry of Finance of the U.A.E. announced, on 28 October 2022; amendments to certain provisions of the UAE Value Added Tax (VAT) regime. “The changes came into force on 1 January 2023”.

According to the resolution--- "gold, diamonds, and any products whose main component is gold or diamonds, which may include workmanship services directly related to the supply of these commodities" - will temporarily replace the definition of "goods"-- in Article (1) of Cabinet Decision No. (25) of 2018 on the Mechanism of Applying Value Added Tax on Gold and Diamonds between Registrants in the State.

Few of the changes regarding VAT are listed below that will affect the sale of gold and diamond: - 

A tax audit for a monthly or quarterly tax period normally cannot be carried out after the passage of five years from the end of such tax period. The actual audit can, however, be done and/or finished within the next 4 years of the taxpayer receiving notice that a tax audit has begun within those 5 years. The Federal Tax Authority ("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.

A person who uses illegal methods to reduce the amount of tax due, avoid paying it, or gain a tax refund when he/she/it is not qualified and is found out that he/she/it is engaging in tax evasion, whether they are registered or not. People frequently think that the FTA won't find out about them if they don't register for VAT. If someone doesn't register for taxes--the FTA has the right to perform a tax audit within 15 years of the date on which he/she/it ought to  have been registered. We previously talked about the registration mistakes made by companies that carry out export services in our Tax Conversation on July 24, 2022. Companies should re-evaluate their obligation to register for VAT. In order to diversify its economy and lessen its dependency on oil, the U.A.E. initially implemented VAT in 2018 with a 5% levy being applied to the majority of goods and services.

The VAT Law has a new article (Article 79 bis). The provision provided in the Article is comparable to the one relating to statute of limitations that was recently introduced to the Excise Tax Decree-Law.

The following topics are covered by the statute of limitations provided through the aforementioned Article: -

  • If the FTA has given notice to audit the taxable person, the statute of limitations of five years will not apply if the audit is finished within four years of the notice's issuance date.

  • The statute of limitations is extended by one year if a voluntary disclosure is made by a taxable person within five years of the conclusion of the applicable tax period.

  • After five years have passed since the conclusion of the applicable tax period, the taxable person cannot file a voluntary disclosure.

Other modifications include --Establishing a 14-day window for the issuance of a tax credit note to pay output tax, in keeping with the window established for the issuance of tax invoices. According to Simon Gordon, Managing Director of Sovereign Corporate Services in Dubai; these changes to the VAT law are other steps in the right direction for the UAE to show that the nation is keeping up with the rapidly changing global economy. Owners of businesses with offices in the UAE must abide with these changes, and the Sovereign's team of VAT experts are always available to help entities/individuals with any questions or concerns.

Tax law changes are a universal phenomenon it illustrates that the tax laws are evolving along with the economy and that the tax authorities are addressing the concerns of the taxpayers. Considering the amendments made to the law relating to VAT, the executive regulations requires to be revisited at the earliest. As the latest reforms have taken effect on January 1, 2023, business owners should proactively assess their effects. The extension of the time frame for the FTA to initiate a tax audit should serve as a timely reminder to check that VAT filings are accurate.

A review of previous filings should be taken into consideration to ensure that any changes can be made within the five-year window given the large extension of the FTA's window for opening a tax audit. Taxpayers will need to carefully review the changes made through the VAT Amendment Law in order to adapt their systems and processes to ensure they are operating in compliance with the law. This includes the requirement to issue tax invoices within 14 days, as well as the extension of invoice requirements to periodic supplies and new zero-rated supplies.

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