22 April 2025 • 5 minute read
UAE Federal Tax Authority publishes policy on issuing tax clarifications and directives
Introduction
Under article 4 of the Federal Decree-Law No. (13) of 2016 on the Establishment of the Federal Tax Authority (FTA), the FTA has jurisdiction to administer, collect and enforce federal taxes and the relevant penalties. Within such framework, the FTA has different instruments available to clarify the tax treatment of matters where there is uncertainty under the applicable regulations and provide taxpayers with clarity on certain aspects of tax regulations. Specific instruments which the FTA has available include private and public clarifications, as well as directives.
On 19 February 2025, the FTA issued Decision No. (2) of 2025 on the Authority's Policy on issuing Clarifications and Directives, effective 1 March 2025, whereby the general framework for the procedures for issuing the mentioned instruments is established.
We have included below the main considerations from the Decision with regard to each of the mechanisms that the FTA has at its disposal.
Clarifications
Private Clarifications
Private clarifications are meant to clarify the tax treatment of a specific situation faced by a taxpayer. A private clarification responds to a request previously submitted by the taxpayer to the FTA through its portal. Such a request may be either accepted (if all the relevant requirements are met) or rejected (under certain circumstances) by the FTA.
If the FTA accepts the request and issues a private clarification, it shall have the following effects:
- The taxpayer has the right to rely on the clarification for that specific circumstance, however, the clarification will only be applicable to that specific taxpayer (i.e., it cannot be applied to third parties).
- The FTA is administratively bound to follow the position from the clarification only if the factual circumstances are the same as the ones included in the clarification request.
- The validity of the clarification is not limited in time, unless the FTA specifies differently.
In terms of procedures, the Decision specifies the following:
- When receiving a clarification request, the FTA will need to determine and communicate to the taxpayer a specific timeline in which a response will be given. Such a timeline may be delayed if additional information is needed from the taxpayer.
- Upon review of the clarification request, the FTA has the right to request additional information from the taxpayer, which will need to be provided within 40 business days. If not provided within the relevant deadline, the FTA is entitled to close the request in the system.
- In a situation where the taxpayer initiates the request but does not submit it, the FTA will ask the taxpayer via automated email to complete the request within 20 business days (and within a timeframe of 40 business days from starting the application). If not submitted within those 40 business days from the date on which the application was initiated, the FTA will close the request.
Public Clarifications, guides and e-learning programmes
With regards to public clarifications, guides and e-learning programmes, the FTA is entitled to determine the mechanisms and procedures to issue them, however, they will need to be reviewed by the Ministry of Finance (MOF) to ensure consistency with the overall tax policies within the UAE.
Directives
According to the Decision, the FTA has the following three mechanisms to issue Directives: (i) administrative exceptions, (ii) input tax apportionment and (iii) Advanced Pricing Agreements (APAs).
Administrative exceptions
The FTA has the right to grant exceptions on certain administrative obligations within the framework of Value Added Tax (VAT) and Excise Tax if certain requirements are met, including exceptions on tax invoices, credit notes or evidence proving the export of goods.
Administrative exceptions are requested by a taxpayer and only accepted by the FTA provided certain conditions are met. If accepted by the FTA, the following should be noted:
- The decision will be effective from its date of issuance unless otherwise stated.
- If granted, the decision is valid for a period of 3 years from the date of issuance, unless the tax legislation to which the decision refers is amended.
- The exception is not aimed at providing a ruling on the correct tax treatment.
From a procedural perspective, the Decision highlights the same considerations as previously referred to in the Private Clarifications section.
Input tax apportionment
Whilst the VAT Law establishes certain mechanisms to determine the amount of recoverable input VAT which relates to goods or services which are only partly used in making taxable supplies (i.e., only partly recoverable), it also allows the taxpayer to propose an alternative method which needs to be approved by the FTA.
Such an alternative method should be requested from the FTA, which will review the application provided certain requirements are met.
If the FTA approves the alternative method, the Decision clarifies that (i) it will be effective from the first tax period beginning after the issuance of the decision and (ii) if approved, the alternative mechanism shall be used by the taxpayer for a period of two to four years, depending on the specific method approved.
From a procedural perspective, the Decision highlights the same considerations as previously referred to in the Private Clarifications section.
Advanced Pricing Agreements
Under the UAE Corporate Income Tax (CIT) Law, a taxpayer can make a request to the FTA to conclude an APA regarding a specific transaction carried out by the taxpayer.
With regards to this mechanism, the Decision only clarifies that applications for unilateral APAs will be received from the 4th quarter of 2025.
Conclusion
The Decision provides an update on the procedural aspects regarding both the Clarifications and Directives which the FTA has at its disposal in light of the recent tax legislation updates in the UAE.
Taxpayers are encouraged to review the procedural aspects of all the different mechanisms in advance, to ensure compliance with the regulations and obtain tax certainty in case of unclear situations.