The UAE’s VAT Executive Regulations have recently undergone significant amendments, particularly affecting the zero-rating of exported services. This amendment marks a pivotal moment in UAE VAT legislation, coming more than two years after the initial introduction of VAT in the UAE. A notable change has been made to Article 31(2) of the VAT Executive Regulations, specifically concerning the criteria for determining an individual’s status as ‘outside the state’.
Understanding the Amendment
The revised amendment narrows down the scope of zero-rated exported services. Under the new regulation, VAT registration service providers are now required to assess whether their foreign clients have a substantial presence in the UAE related to the service and whether they have any connection to the supply of the service within the UAE. Previously, both conditions had to be met for zero-rating the export of services, but now both aspects must be considered mandatory. Given the potential increase in administrative burden on service providers, businesses are advised to seek assistance from reputable VAT experts in Dubai, UAE.
Previous Version of Article 31(2)
The original version of Clause (2) of Article 31 stated: “An individual will be considered ‘outside the State’ if they have a temporary presence in the State of less than a month, or if the presence in the State is not effectively connected to the supply.”
Amended Version of Article 31(2)
The amended version now states: “An individual will be considered ‘outside the State’ if they have a temporary presence in the State of less than a month, and the presence is not effectively connected to the supply.”
Implications for Businesses
According to the new amendments, a VAT-registered service provider in the UAE must refrain from zero-rating services to a foreign client who attends only one meeting in the UAE, which is related to the services received. For instance, if a client stays in the UAE for 30 days due to travel, the service provider must consider them as ‘established in the UAE’. Consequently, the foreign client would have to bear an additional 5% cost along with the service fee.
The recent amendment to the UAE VAT Executive Regulations, through Cabinet Decision No 46 of 2020, may seem like a minor change on the surface, but it carries significant implications for UAE businesses. This amendment increases the administrative burden on businesses as they must now demonstrate to the Federal Tax Authority (FTA) that their clients meet the new criteria outlined in Article 31(2) of the UAE VAT Executive Regulations. In such circumstances, service providers are advised to seek professional guidance from reputed VAT consultants in Dubai, UAE.
How SimplySolved Accountants Can Assist
With the first amendment to VAT Registration in the UAE in over two years, businesses face new challenges in complying with regulations. The amended regulations not only narrow down the scope of zero-rating services but also introduce additional criteria for determining the status of non-resident clients. This adds to the administrative burden on UAE businesses, necessitating the expertise of VAT professionals like SimplySolved.
SimplySolved stands out as one of the leading VAT experts in Dubai, boasting a team of knowledgeable tax specialists and auditors well-versed in UAE VAT laws and regulations. Their services include VAT registration, deregistration, and ensuring VAT compliance, allowing business owners to maintain peace of mind knowing their operations are in line with regulatory requirements.