FTA publishes a VAT Public Clarification on use of SWIFT messages in the FS sector for input tax recovery

7 February 2024 – On 5 February 2024, the Federal Tax Authority (FTA) in the United Arab Emirates (UAE) published VAT Public Clarification (“Clarification”) VATP036, regarding the acceptability of SWIFT messages for the purposes of the VAT documentation requirements and to support input tax recovery. 

Whilst on the face of it this development appears to be confined to the Financial Services (FS) industry, it appears there could be a wider impact for companies operating in other sectors.

Summary of Clarification

Background

UAE Financial Institutions are treated as making self-supplies when receiving interbank services from banks outside the UAE. This requires them to account for VAT on these services as if they had supplied them to themselves, fulfilling all related tax obligations and in principle also requiring them to issue tax invoices to themselves for the receipt of these supplies. In practice, international bank charges and their underlying transactions are evidenced by SWIFT messages which in principle do not meet the requirements to constitute tax invoices for UAE VAT purposes.

Simplification from the FTA

The FTA makes it clear that, considering the volumes of SWIFT messages received, it would be impractical to require Financial Institutions to issue a tax invoice to themselves for each SWIFT transaction. Therefore, the FTA allows a simplification in this regard. Provided the SWIFT message contains sufficient information to establish the particulars of the supply (Qualifying SWIFT message), UAE Financial Institutions are not required to issue a tax invoice to themselves in respect of interbank services received from a non-resident bank and for which such SWIFT Communication has been received. 

Therefore, for the purposes of input tax recovery, a SWIFT message is accepted as sufficient documentary evidence, provided it contains information to establish the particulars of the supply.

Implications for the FS Sector and Potential Wider Industry Impact

FS Sector

This Clarification is a welcome simplification for the UAE FS sector as it lowers the administrative burden. Businesses in the UAE FS sector should determine whether the SWIFT messages exchanged qualify as a “Qualifying SWIFT Message” to be eligible for this simplification, and whether changes to existing documentation and governance may be required to avail of this.

Potential Wider Industry Impact 

The FTA makes clear in the Public Clarification that for the import of services, a valid tax invoice should be issued by the recipient of the supply to itself. This is on the basis that the VAT legislation shifts the responsibility to fulfil “all tax obligations” to the recipient. 

If this Clarification makes a general statement in this respect, this would in principle entail that any UAE business which imports services (including those not within the FS sector) would be required to issue a tax invoice to itself in order to fulfil the UAE VAT invoicing requirements. This is in addition to the declaration of output tax and recovery of input tax (if allowable) in its own VAT return.  

It is yet to be seen whether this statement on self-invoicing should be viewed as being limited to the specific services discussed in this Clarification, or whether the FTA in practice will enforce these obligations to businesses in all industries.

How Deloitte can help

Your tax advisor is available to discuss to which extent your businesses is eligible to apply the simplification provided in this Clarification and whether the SWIFT messages received do qualify as “Qualifying SWIFT message”.