FTA publishes Public Clarification on the use of exchange rates for VAT purposes

The United Arab Emirates (UAE) Federal Tax Authority (FTA) has published a new Public Clarification on the use of exchange rates for Value Added Tax (VAT) purposes. The UAE Central Bank began publishing official daily exchange rates on 17 May 2018, and the new Public Clarification by the FTA provides guidance on the use of these exchange rates for tax invoice purposes.

VATP004 – VAT Public Clarification on the use of exchange rates for VAT purposes

VAT Public Clarification VATP004 discusses the rules for applying the daily exchange rates which have been published by the UAE Central Bank since 17 May 2018, along with historical exchange rates for prior dates.

The document addresses how the official rates should be applied to tax invoices issued in a currency other than the UAE Dirham between 1 January 2018 and 16 May 2018, and whether or not they must be retroactively reissued using the Central Bank’s historical exchange rates.

According to the Public Clarification, tax invoices issued in a currency other than UAE Dirhams prior to 17 May 2018 do not need to be reissued using the Central Bank’s historical exchange rates, as long as the foreign currency was converted to UAE Dirhams using a reliable source for exchange rates and the same source was used consistently. The document gives examples of reliable sources, which include (but are not limited to) Thomson Reuters, Oanda, and exchange rates published by a UAE bank. Under these terms, therefore, businesses that use a combination of rates in determining their own rate of exchange will not be able to rely on the use of those rates prior to 17 May 2018, but will need to reissue those invoices in accordance with the Clarification.

However, if a business issues a tax invoice after 17 May 2018 which has a date of supply prior to 17 May 2018, the business must use the historical rates published by the Central Bank for the relevant date.

All invoices issued on or after 17 May 2018 must use the exchange rates published by the Central Bank. Further, the rate used must exactly match the Central Bank’s published rate and use the same number of decimal places. If an invoice is issued before 6pm (which is when the Central Bank publishes the rate for that day), the business must use the rate available at the time, which would apply to the previous day.