The Executive Regulation of the Federal Decree-Law No. 8 of 2017 on Value Added Tax, that was issued by the Cabinet Decision No. 52 of 2017 – on 26 November 2017, has been updated through the Cabinet Decision No. 46 of 2020 – dated 4 June 2020.
The primary and essential change is related to the Export of Services and the application of its Zero-Rating tax. Under Article (31) paragraph (2), the treatment replaced the “Or” condition with “And”. The Article now reads as the following:
“For the purpose of paragraph (a) of Clause 1 of this Article, a person shall be considered as being “outside the State” if they only have a short-term presence in the State of less than a month and the presence is not effectively connected with the supply.”
While the above change will only impact taxpayers are dealing only with the export of services and hence zero-rated activities, the condition “and” makes it more restricted towards the criteria to apply the zero rate for the exportation of services. Accordingly, foreign customers/clients are only can be considered as such where both: 1) they are not residing in the UAE for more than a month, which relates as well to the definition of establishment taken into consideration; AND 2) the clients/customers presence in the UAE for less than a month is not effectively connected with the services supply being rendered.
In the case where the above two conditions are not being met, the place of supply become in the UAE and would be expected to be taxable at the standard rate.
As outlined during our VAT update webinar, this is another example of the importance of the taxpayer to sufficiently and adequately assessing and performing due diligence on determining the place of establishment of their customers/clients, and represent another critical area of the FTA’s consideration.
If you think the above change might impact your VAT reporting and compliance and require any further help or assessment, do not hesitate to contact us.