On 14 March 2025, the Federal Tax Authority (FTA) published the much awaited Public Clarification VATP040 to explain the changes to the Executive Regulations (ER) of Federal Decree Law No. 8 of 2017 on Value Added Tax, effective through Cabinet Decision No. 100 of 2024.
Many of the amendments were effective from 15 November 2024 and the clarification is a welcome move to ensure the VAT treatment is reported correctly in the VAT returns filed by the registered businesses. The changes to the ER aims at:
We have summarized the key changes in the ER published earlier and the Public Clarification below:
| Article No. | Topic | Amendment in ER published on 2 October 2024 (BDO Update) | Clarification published on 14 March 2025 |
| Article 1 | Definitions | Definitions of Virtual Assets, Business Day and Standard rate have been added. Whereas, other definitions of Decree-Law, Indirect Export, Direct Export, Overseas Customer, etc. have been updated. The definitions of Virtual Assets are noteworthy as it confirms that businesses should review their activities as the exemption has been made with a retrospective effect from 1 January 2018. Additionally, digital representations of fiat currencies or financial securities have been explicitly excluded from the definition of virtual assets. | The definitions have been reiterated by the Public Clarification. The Digital currencies issued by the Central bank will not be considered as virtual assets as they merely represent digitalized version of fiat currencies. |
| Article 2 | Supply of goods | The ER has been updated and any disposal of real estate that results in the transfer of ownership from one party to another is considered a supply of goods. | The Public Clarification affirms the changes made in ER. BDO Caution Tip: It has not yet clarified whether the term "ownership" refers to legal ownership, beneficial ownership, or both. |
| Article 3(bis) | Exceptions of Supplies | A new article was added stating that the grant, transfer, or disposal of ownership or the right to use government buildings and real estate from one government entity to another shall not be considered a supply. Additionally, government building and assets have been defined. | This has been reinforced by the Public Clarification. Additionally, it may be noted that grants or transfers of “ownership and disposal” of government buildings and real estate from one government entity to another has been excluded from VAT w.e.f 15 November 2024. However, grant or transfer or “right to use, exploit or utilize” such assets have been excluded from 1 January 2023 onwards. |
| Article 4 | Supply of more than one component | The amendment mentioned that for a composite supply to be considered as a single supply, the various components must be provided by a single supplier, and the price of the components must not be separately identified or charged. | The clarification explains the tax treatment of bundled supplies with examples, ensuring that VAT is applied correctly. The clarification further emphasizes that a supply will only be considered a composite supply if all conditions outlined in Article 4(4) of the Executive Regulation are fulfilled. |
| Article 5 | Exceptions Related to Deemed Supplies | The provisions of deemed supply have been rationalized and now state that a supply shall not be considered as a deemed supply if both the supplier and the recipient are either government entities or charity and the total value of output tax payable does not exceed AED 250,000 during a period of 12 months. | The Public Clarification further explained the VAT treatment in case the monetary threshold of AED 2,000. Where the monetary threshold of output tax of AED 2,000 over a 12-month period is exceeded, only the amount in excess of the AED 2,000 would be considered as payable tax. |
| Article 8 | Voluntary Registration | The article was amended to exclude businesses from obtaining voluntary registration unless they meet the following conditions:
| The Public Clarification reaffirmed the amendment. BDO pro-tip The amendment is noteworthy as it brings highlights that merely having taxable supplies are no longer the sole requirement to apply for voluntary registration. A clear intention to make supplies shall also be evaluated. Holding Companies and Funds registered in the UAE will now be able to register under UAE VAT only when they have an intention of making supplies which allow input VAT recovery. |
| Article 14 | Tax deregistration | The amendment stated that the FTA can deregister a taxable person who has created a deregistration application in EmaraTax and saved it as a draft without completing the process, provided the conditions for deregistration are met. Additionally, it has been emphasized that tax deregistration does not exempt a registrant from complying with the provisions of the Decree-Law and its regulations, including the requirement to submit a new tax registration application when the conditions for registration are fulfilled. | The amendment has been reiterated by the Public Clarification. |
| Article14(bis) | Tax deregistration to protect the integrity of the tax system | The amendment in the Executive Regulations, stated that the FTA may issue a decision to deregister an individual if maintaining their tax registration could compromise the integrity of the tax system. | The clarification reaffirmed and highlighted the empowerment provided to FTA to deregister a registrant suo moto. |
| Article 15 | Deregistration of a tax group registration or amendment thereof | The amendment empowered that the FTA may deregister a tax group if any of the conditions specified in Article 15(1) are met. | The Public Clarification restates that the responsibility rests with the representative member of the tax group to notify the FTA when a member is no longer eligible to remain in the tax group and to apply for an amendment to the tax group. |
| Article 16 | Exception from registration | The taxable person is required to notify the FTA of any changes that occur to his business leading to the person not being eligible for the exception from registration within 10 business days from the date he makes any standard-rated supply or import. | No change highlighted in the Public Clarification. BDO Caution Tip: Entities who have sought exception from registration must regularly assess and monitor their supplies. If they no longer qualify for the exception, they must inform the FTA within 10 business days from the date of making taxable supplies or import of goods and services. |
| Article 29 | Accounting for tax on the profit margin | It is clarified that for calculating the profit margin i.e. difference between the purchase price & selling price, the purchase price shall include any cost & fees incurred to purchase the good in addition to the price of the good. | The clarification is significant as it states that when shipping fees, installation charges, or similar costs are charged by a registrant, these costs should not be included in the purchase price. This is because the recipient may recover input tax based on the invoice issued by the supplier of these services. |
| Article 30 | Zero-rating the export of goods – Documentary requirement | The definition of “official evidence”, “commercial evidence” and “shipping certificate” have been incorporated. This provides more clarity on the export documentation to be maintained in order to avail the zero-rating benefits under the amended provision. | This clarification is a positive development, addressing the challenges exporters faced in obtaining an Exit Certificate from Customs due to the divergent practices at the Emirate level and limitations of Customs procedures in the UAE. Further, the clarification emphasizes on the requirement to maintain Customs Exit certificate for export of goods prior to 15 November 2024. |
| Article 31 | Zero-rating the export of services | An additional condition has been included in the Executive Regulations to assess whether an export of services can be zero-rated, essentially stating that services will not be zero-rated where the place of supply is in the UAE in accordance with the special place of supply rules contained in Article 30(3)-(8) or Article 31 of the VAT Law (i.e., these special place of supply rules cover services in relation to means of transport, restaurants, catering services, cultural, artistic, sporting, and educational services, etc.) Additionally, in Article 31(1)(2), the reference to “personal moveable assets” has now been changed to “moveable assets” eliminating any uncertainty surrounding what type of assets may fall within the ambit of this term. This removal of “personal” provides clarity that any services provided on moveable assets in the UAE at the time the services are provided may not qualify for zero-rating. Examples may include any installation services, repair services, or any services which has the impact of physically altering or changing the moveable assets. Another key clarification explained through an example is around the term “short term” presence. Where services are provided throughout a year and the director of the non-resident recipient is in UAE for more than 30 days during the 12 months preceding the date of supply, the recipient is considered as being in the UAE. Accordingly, the services may not be zero-rated. | The Public Clarification further clarifies that the recipient’s presence in the UAE should be evaluated on a total of 30 days during a year. In case the total presence of a recipient in the UAE exceeds the limit of 30 days, the transaction shall not qualify for zero rating provisions. However, there seems to be a difference between the Public Clarification and the Executive Regulations as the Regulations does not state calculating the threshold of 30 days during an entire year. BDO Caution Tip: Businesses who provide services to non-residents throughout the year should re-evaluate the position on zero-rating in light of the above clarification. If the Non-resident recipient’s director is in UAE for more than 30 days during the 12-month period preceding the date of supply, the services will be standard-rated. Also, businesses should be cautious, as the zero-rating condition may be threatened by the physical presence of a director (who is on the board of overseas entities) in the UAE. |
| Article 33 | Zero-rating International Transportation Services for Passengers and Goods | Clause(1)(d) has been amended to specify that the transportation of goods within the UAE will qualify as zero-rated only if it is provided as part of an international transportation service by the same supplier that is responsible for international transportation. Clause (2)(b) has been amended to clarify that the services supplied during the supply of international transportation services will be zero-rated only if they are supplied to the recipient of the transportation service. This amendment is critical to logistics and transportation sectors (including local subcontractors for international freight forwarders) as it directly impacts their VAT obligation and compliance requirements. | The amendment in the Executive Regulations has been reaffirmed by the Public Clarification. |
| Article 34 | Zero-rating certain means of transport | The benefit of zero-rating has been extended to the import of means of transport as well. | The clarification reaffirms the earlier amendment and emphasizes that if a ship is used for commercial purposes while its primary functions does not involve transportation of goods or passengers, in such an instance it will not be qualified for zero rating provisions. |
| Article 35 | Zero-rating goods and services in connection with means of transport | Additional zero-rating conditions have been added for services supplied directly in connection with the means of transport for the purpose of operating, repairing, maintaining or converting. These include:
| The same has been reaffirmed by the Public Clarification. |
| Article 37 | Residential buildings | The amendment established that a hotel apartment, a serviced apartment or a similar property will not be considered as residential and hence will be subject to VAT at the rate of 5%. | The Public Clarification has confirmed that a hotel apartment, a serviced apartment, or the like, are not regarded as residential buildings. |
| Article 41 | Zero-rating healthcare services | The benefit of zero-rating has been extended to the import of pharmaceutical products & equipment as well. It is now aligned with Article 45 (14) of the VAT Decree law and Cabinet Decision No. 56 of 2017 which already permits zero-rating of import of healthcare goods and services. | The Public Clarification reaffirmed the amendment and removes any ambiguity by specifying that both import and export of pharmaceutical goods and Equipments will qualify for zero rating. |
| Article 42 | Tax Treatment of financial services | The definition of “Islamic financial arrangement” was amended with the addition of a reference to “relevant laws”. Consequently, the commercial laws governing transactions such as Ijarah, Murabaha and Salam should also be considered. Additionally, services provided by fund managers for UAE-licensed investment funds are now exempt from VAT, whereas previously these services were considered taxable. | The Public Clarification reiterates that services relating to fund management services will be treated as ‘exempt’ w.e.f. 15 Nov 2024 onwards. BDO Caution Tip The FTA is yet to provide clarity on types of licenses meeting the criteria while stating ‘licensed by a competent authority’. Additionally, the transfer, conversion, management, and control of Virtual Assets, including virtual currencies, are now classified as financial services and will be treated as exempt from VAT. This exemption, effective retroactively from January 1, 2018, means businesses do not need to charge VAT on crypto-related transactions but cannot recover VAT on related business expenses. |
| Article 53(1)(c) | Input tax recovery in respect of exempt supplies | The amendment stated that VAT registered employers can recover VAT incurred to provide health insurance to their employees and employees’ families (if applicable), regardless of whether there is a legal obligation to provide such health insurance or not. | The Public Clarification restated the amendment. One of the key matters clarified is that businesses can recover input VAT proportionate to the period 15 November to 31 December 2024. BDO Pro tip The position on proportionate Input VAT recovery within the two-tax period limitation is not clarified. However, businesses should evaluate this before determining the input VAT on medical insurance for dependents. |
| Article 55 | Apportionment of input tax | The FTA has updated the following provisions:
| The amendment on majority of the changes under this provision like the tax year and applicability of input tax apportionment for Government and charities are in line with the amended provisions. However, the calculation of VAT recovery ratio has been kept as per the simplified calculation referred to in the Input Tax Apportionment VAT Guide without any changes through the amended provisions of the Executive Regulation. BDO Caution Tip Considering the clarification comes after the annual calculations of some registrants in February 2025, such registrants may be required to re-evaluate the annual calculations. |
| Article 58 | Adjustments under the capital assets scheme | It has been amended that the first year for an internally developed Capital Asset shall be the year in which that asset is started to be used, even if the capital asset was ready for use in a prior year. | Public Clarification has not provided any additional clarification to such matter. |
| Article 59 | Tax Invoice | The FTA has clarified multiple points under this provision:
| The clarification states that a “self invoice” is required to be issued by the businesses in case of imports of goods and services. This was earlier highlighted through the clarification on SWIFT messages. BDO Caution Tip: Entities with high quantum of imports must evaluate whether an administrative exception form is required to be filled for exempting issuance of self issue tax invoices for imports. |
| Article 60 | Tax Credit Notes | Where the Registrants issues more than one Tax Credit Note in relation to the same Tax Invoice, it is clarified that the value of the supply in the subsequent Tax Credit Note shall be the adjusted value based on the previous Tax Credit Note/(s). Further, a disclosed agent issuing Tax Credit Note on behalf of the principal is required to meet the following conditions:
| No change has been further clarified by the Public Clarification. |
Businesses should evaluate the impact of changes to the VAT Executive Regulations on their operations on a period-by-period basis, taking into account the effective date of these changes. These adjustments affect the entire business cycle, including Operations, Finance, Procurement, and IT.
For changes related to the treatment of supplies and input VAT recovery (such as the export of services, financial services, or medical insurance for dependents), the Operations, Finance, and Procurement teams should receive training to implement the revised treatment. Additionally, with the support of the IT team, necessary updates should be made to accounting and tax software systems.
For changes related to documentation (such as self-invoicing for Reverse Charge Mechanism or export of goods documentation), the documentation policy should be revised, and processes should be established to ensure compliance.
BDO UAE assists businesses in evaluating the impact of these changes on their activities, policies, processes, and systems. Feel free to reach out to our tax experts for support in addressing these matters.
