GCC Indirect Tax Weekly Digest

UAE developments

Amendments to VAT Law and Regulations effective as of 1 January 2023

On 1 January 2023, recently published amendments to the United Arab Emirates (UAE) Value Added Tax (VAT) Law and VAT Regulations took effect.

The following is an overview of the amendments made to each legislative instrument.

VAT Law

In October 2022, the Federal Tax Authority (FTA) published amendments to Federal Decree-Law No. 8 of 2017 on Value Added Tax (UAE VAT Law).

The amendments impact a wide range of areas of the Law and also introduce a new article on the statute of limitations for the FTA to conduct tax audits.

The most significant of the changes is an extension to the time limit for the FTA to conduct audits into prior VAT periods, and we recommend that particular attention is given to the implications this is likely to have for businesses.

Deloitte can assist your business by conducting a mock audit to simulate the type of review the FTA may conduct. The review would identify points of non-compliance and provide you with recommended actions to bring your business into compliance with the UAE VAT legislation and can also include assistance with filing Voluntary Disclosures (VDs).

Other amendments made to the VAT Law relate to the following topics:

• Domestic Reverse Charge Mechanism applicability for Hydrocarbons 
• Zero rate applicability for import of goods
• Record-keeping requirements for VAT recoverability
• Timelines for tax invoices and tax credit notes
• Recovery of tax by government entities and charities

For a detailed overview of the amendments, please refer to Deloitte’s alert.

VAT Regulations

In November 2022, the FTA published an amended version of the Executive Regulation of the Federal Decree-Law No. 8 of 2017 on Value Added Tax (UAE VAT Regulations).

Article 3 has been expanded with a provision that specifies the functions of a member of a board of directors performed by a natural person, for any government or private sector establishment, is not considered a supply of services. Therefore, the performance of such a function would be out of scope of VAT and VAT would not be applicable on the remuneration paid to a member of a board of directors.

In addition, Article 72 on recordkeeping requirements has been amended. Most notably, specific rules have been introduced in relation to taxable supplies made through electronic commerce (i.e., via electronic means, an electronic platform, a store in social media, or other electronic applications). 

Where taxable supplies made through electronic commerce exceed AED 100 million during the calendar year, the supplies must be recorded according to the Emirate in which the supply is received. The Article also sets out the timelines applicable to the new rules.

KSA developments

ZATCA publishes Tax Circular on the VAT treatment of certain supplies in the Financial Services industry

The Kingdom of Saudi Arabia (KSA) Zakat, Tax and Customs Authority (ZATCA) has published a Tax Circular on the VAT treatment of certain supplies in the Financial Services industry.

The Circular is intended to provide information and guidance on the application of the VAT rules relating to the following two types of transactions involving banks and financial institutions in KSA:

• Supplies of services by international banks established in KSA to non-resident customers; and
• Incentives provided by credit card companies to banks in return for achieving operational targets.

The supply of services by international banks established in KSA to non-resident customers may be standard rated, zero-rated, exempted, or outside the scope of KSA VAT depending on the specific circumstances of the transaction. As such, the Circular sets out the principles to consider in applying the correct VAT treatment.

For incentive payments received by banks from credit card issuers, the contractual and commercial arrangements between the parties would determine whether the transaction is a supply of services by the banks to credit card companies, or a reduction of consideration for earlier supplies by the credit card issuers. Accordingly, the Circular covers the VAT treatment of such transactions.

ZATCA announces the criteria for selecting second wave taxpayers and publishes detailed guidelines for e-invoicing

ZATCA has announced the criteria for selecting resident taxpayers for the second wave of the e-invoicing integration phase.

As per the announcement, resident taxpayers who reported taxable revenue of more than SAR 500 million in VAT returns filed for the calendar year 2021 will be required to integrate their IT systems with ZATCA for clearance and reporting. For the second wave of resident taxpayers, the integration go-live with the ZATCA Fatoora Portal will be on 1 July 2023. 

This will provide them with at least six months to comply with the integration phase requirements. We understand that ZATCA will officially notify the selected taxpayers in due course, however we recommend that all taxpayers who fall into this category should assess their capabilities to be able to comply with the new requirements as a matter of priority.

Further, ZATCA recently issued detailed guidelines for e-invoicing which can be accessed in the following link.

Deloitte events

Webinar recording:The second wave of the e-invoicing integration phase in KSA

In 2021, the ZATCA introduced e-invoicing in the KSA. Phase one (the generation phase) of the e-invoicing was mandated with effect from 4 December 2021 for resident taxpayers. However, Phase two (the integration phase) went live on 1 January 2023 for the first wave of taxpayers having taxable revenue of more than SAR 3 billion reported in their 2021 VAT returns.

Recently, ZATCA has started contacting taxpayers to obtain their readiness details to prepare for the second wave of the e-invoicing integration phase. Hence, it has become critical for buasinesses to kick start the integration phase requirements to ensure timely compliance with the regulations. 

In light of the above, our Tax experts held a 60-minute webinar on Wednesday, 14 December 2022 to support businesses in preparing for the integration phase by addressing the following topics:  

• The current e-invoicing landscape in KSA;
• Lessons learnt from the generation phase, ZATCA’s pilot program, and integration phase for taxpayers in the first wave;
• Deloitte’s INTax Solution, its capabilities and demo; and
• How to effectively manage the integration phase requirements.

To view the recording of the webinar, please visit this link

This digest is for information purposes only and should not be construed as advice. It does not necessarily cover every aspect of the topics with which it deals. You should not act upon the contents of this alert without receiving formal advice on your particular circumstances.