Understanding the Significant Improvements to the VAT Executive Regulations in the UAE

Introduction
The Federal Tax Authority (FTA) of the UAE recently amended some provisions of the UAE VAT Executive Regulations, particularly Cabinet Decision No. 52 of 2017, on the Implementing Regulation of Federal Decree-Law No. 8 of 2017 on the Value Added Tax (VAT Executive Regulations). Businesses are encouraged to seek legal advice in Dubai from a reputed law firm in UAE to fully understand the implications of these updates.

Amended Key Definitions under the VAT Executive Regulations
According to Article 1 of the UAE VAT Executive Regulations, the term virtual assets is defined as a digital representation of value that can be digitally traded or transferred and can be used for investment purposes. This definition, however, excludes the digital representation of securities or fiat money.

Additionally, Article 2 clarifies what constitutes a supply of goods. This includes transfers of ownership or the right to dispose of goods, either through written or verbal agreements, as well as compulsory transfers in exchange for consideration. For a transaction to be classified as a supply, the receiving party must have the ability to dispose of the goods as their owner. Even contracts that specify the transfer of ownership or the intention to transfer ownership in the future are also considered supplies. Transactions involving water, energy supply, and real estate are also deemed supplies of goods under this provision. Additionally, the transactions related to the supply of water supply, energy supply, and real estate are also considered as supply of goods. Professionals such as the best lawyer in Dubai can provide critical insight into how these definitions apply to business transactions.

A new Article 3 bis – Exceptions to the supply has been introduced. It states that certain transactions, such as the transfer of ownership or disposal rights to government buildings, real estate assets, and similar projects, are not considered supplies. Examples include the government headquarters, government capital projects, government infrastructure projects, real estate assets used by government agencies, real estate assets allocated for public facilities, and developed government lands used by government agencies.

The value of the goods that are supplied to each recipient may not exceed AED 500 within a period of twelve months, as stated in Article 5. Additionally, the total output tax due on all deemed supplies cannot exceed AED 2,000 per supplier during this period. Further, this provision states that any amount above this threshold becomes payable. For government entities and charities, the total output tax is capped at AED 250,000. The 12-month period concludes at the end of the month in which the supply was made.

In accordance with Article 30, direct or indirect exports of goods are eligible for a zero rate if specific conditions are met. In order to support this eligible criterion, businesses must maintain documentation such as customs declarations, commercial evidence of exported goods, shipment certificates, or official proof of export. Additionally for services, Article 31 outlines that the export of services may qualify for zero rating if they are not considered performed within the UAE or a designated zone.

Scope and definitions of financial services:

• Debt security includes any legal right or interest in receiving money owed by another party, such as options to acquire such rights.
• The term equity security refers to the legal rights or interests that are held in shares of a company or options to acquire shares of that company.
• Life insurance contracts are legally binding agreements that provide financial payouts based on contingencies such as life, marriage, or childbirth.
• Islamic financial arrangements are financing contracts compliant with islamic sharia and relevant laws.

Article 42 (2) further stipulates that financial services involve monetary transactions, credit provisions, and similar activities. These include currency exchange, issuance and transfer of cheques or letters of credit, provision of loans or credit, and renewal or variation of credit contracts. Services related to investment fund management, such as managing fund operations and improving fund performance, are also covered under these financial services. Importantly, virtual asset services, including management, conversion, and transfer, fall within the scope of financial services. Agreements or contracts related to these activities (excluding advisory services) are also classified as financial services.

Tax Exemptions for Financial Services
In accordance with article 43/2 stipulates that some financial services are exempt from taxation, provided specific conditions are met. These include:

• Services outlined in Article 42/2 that are not performed in exchange for explicit fees, commissions, discounts, or rebates.
• Transfer of ownership of equity or debt securities, including issuance and allotment.
• Provision or transfer of ownership of life insurance and reinsurance contracts.
• Management of investment funds licensed by competent authorities.
• Virtual asset-related services, including those supplied as of January 1, 2018.

These exemptions can be best interpreted with assistance from a top law firm in UAE experienced in taxation law.

Conclusion:
The updated UAE VAT Executive Regulations clarify financial services and virtual assets and add transaction exemptions. This improves compliance, is more in line with current financial practice, and is also consistent with the UAE’s changing economic structure.