January 1, 2023 will be a landmark date for UAE VAT. It will represent the completion of 5 years of a tax regime in the UAE, and also unveil the first set of major changes in the VAT laws. Here are the top 8 changes that you should be aware of:

1. Extended time for a Tax Audit

A tax audit for a monthly/quarterly tax period cannot generally be conducted after the expiration of 5 years from the end of such tax period. However, if a taxpayer has been notified of the commencement of a tax audit within such 5 years, the actual audit can be conducted and/or completed during the next 4 years following such notification.

2. Tax audit after Voluntary Disclosure

If a Voluntary Disclosure for a monthly/quarterly tax period is submitted in the 5th year from such tax period, FTA will get an additional 1 year for conducting a tax audit. The additional time will essentially ensure that FTA gets sufficient time to process the voluntary disclosure and conduct additional audits based on such disclosures.

3. Tax Evasion

In a case of tax evasions, a tax audit can be conducted with 15 years from the end of the tax period in which the tax evasion occurred. A tax evasion has been defined to mean a person’s, whether registered or not, use of illegal means, resulting in the reduction of the amount of tax, non-payment thereof, or an otherwise ineligible tax refund being obtained.

4. Failure to obtain VAT registration

People often believe that if they do not obtain a VAT registration, the tax authorities would not get to know about them. If a person fails to obtain a tax registration, FTA may conduct a tax audit within 15 years from the date on which such person ought to have been registered. In our previous Tax Conversation on 24/07/2022, (https://www.khaleejtimes.com/business/vat-registration-the-biggest-error-made-by-service-exporters), we had discussed the registration errors made by businesses making zero-rated supplies. Businesses should revaluate if they are obliged to obtain VAT registration.

5. Good news for 100% exporters

In the same Tax Conversation, we also explained that if 100% supplies of a business are zero-rated, the law does not mandate to burden the business owners with periodic VAT compliances. Such businesses have an option to request for an exception from VAT registration.

The companies which were not aware of such beneficial provision, and were already VAT registered, were required to continue with their periodic VAT compliances.

Effective 01/01/2023, the VAT registered businesses could also apply for the exception from the VAT registration.

6. Additional compliance for input credit on import of service

Many businesses pay for services to the overseas service providers on the basis of agreements without requiring the service providers to issue an invoice. As per the recent changes in the VAT laws, for import of services, input credit could only be recovered if the taxpayer receives and retains invoices in accordance with the VAT laws.

7. Construction sector and retention payments

In our earlier Tax Conversation on 05/07/2021, we discussed about the time of supply for retention payments. If the time between the progressive milestones of delivery of goods/services and retention payment claims exceeds 12 months, VAT could still become payable.

The date of expiration of one year from the date when the goods/services were provided has now been added as a specific date of supply for VAT purposes.

8. Deemed supplies to related parties

Deemed supplies such as supply of goods on FOC (free of cost) to related parties could have earlier triggered a VAT liability under the existing laws.

As per the amended VAT laws, a company may not have a VAT liability on FOC goods/services to related parties if the recipient company is otherwise entitled to recover 100% input credit on its purchases.

Concluding remarks

Amendments in the tax laws is a global phenomenon. It demonstrates that the tax laws are keeping pace with the changing economy and that the tax authorities are working on the taxpayers’ concerns. With the changes in the VAT laws, the executive regulations should also be amended very soon. Business owners should evaluate the implications of the recent changes proactively before the changes become effective from January 1, 2023.

(Pankaj S. Jain is the managing director of AskPankaj Tax Advisors. For feedback and queries, you may write to info@AskPankaj.com. Views expressed are his own and do not reflect the newspaper’s policy.)

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