Country-specific updates: UAE

United Arab Emirates - Amendments to the VAT Decree-Law Announced

Value added tax (VAT) was implemented in the United Arab Emirates (UAE) on 1 January, 2018. Since the date of implementation, relatively few changes have been made to the VAT legislation, with the exception of notable amendments to the conditions for zero rating export of services, supplies involving designated zones, and an overhaul of the penalty regime.

Pursuant to Federal Decree-Law No.18 2022 (new Decree-Law), the UAE has now announced amendments to no less than 24 provisions of the Federal Decree-Law No. 8 2017 on Value Added Tax (VAT Decree-Law), making this the most significant amendment to the VAT legislation to date. The amendments will take effect from 1 January 2023.

Whilst a majority of the amendments relates to changes of legislative-technical nature (e.g., new definitions), which are, for the most part, aimed at fixing minor issues, the new Decree-Law also implements significant changes to the rules regarding the statute of limitations.

Under the UAE VAT legislation, the standard statute of limitation is five (5) years and fifteen (15) years in case of tax evasion. In principle, this entails that starting from 2023, the Federal Tax Authority (FTA) will no longer be able to conduct tax audits or issue tax assessments for tax periods related to calendar year 2018 (i.e., as from when the corresponding tax period expires).

The new Decree-Law however implements three (3) important exceptions to the standard statute of limitation:

• The standard limitation period of five (5) years will not apply, and the FTA may conduct a tax audit or issue an assessment beyond the 5-year window, provided that the FTA has (i) notified the taxpayer of an audit before the expiration of the 5-year period and (ii) the audit is completed within four (4) years from the date of the aforementioned notification.
• If a taxpayer files a voluntary disclosure in the fifth (5th) year of the standard limitation period, the FTA may conduct a tax audit or issue an assessment, provided that it is completed within one (1) year of the submission of the voluntary disclosure.
• A taxpayer can no longer file a voluntary disclosure after the lapse of five (5) years from the end of the relevant tax period.

Taxpayers should expect an increase in audit activity from the FTA in the coming months, as the FTA will likely make use of the new amendments to extend the standard statute of limitation by notifying taxpayers of a tax audit.

It is expected that the VAT Executive Regulations will also be amended to further implement the changes made in the VAT Decree-Law.