UAE businesses get clarity on VAT invoices for imports

About a month back in this column, we highlighted a tax conundrum faced by the UAE business community, both in mainland and in free zones.

Is a VAT-registered person required to issue tax invoices to itself for each import of goods and services? 

Among various solutions, businesses were being advised to seek private clarification or administrative exception from the Federal Tax Authority (FTA) on issuing tax invoices to itself for imports of goods and services. We highlighted that a general clarity could help the business community, both administratively and financially.

FTA recently provided such clarity in a significant relief to the entire business community. The  VAT Public Clarification (VATP044) explains the applicable requirements for the VAT accounting, issuance of tax invoices, and input tax recovery on import of services in UAE.

VAT-registered businesses often receives/imports services from outside UAE. The businesses are regarded as making a taxable supply to itself if the ‘place of supply’ of such services is in the UAE.

Such businesses are responsible to account for VAT on such imported services. The transaction should be reported in Box 3 of the VAT return for the tax period as per the applicable ‘date of supply’.

In a significant relief, UAE businesses are not required to issue a tax invoice to itself on import of services if the overseas suppliers’ invoice are received and retained by them.

The overseas suppliers’ invoice should reflect the details - and the consideration paid - for the services. It is important that the UAE recipient accounts for the correct VAT amount under the reverse charge mechanism (RCM) and retains sufficient information to establish the particulars of such services.

Alternatively, if the overseas supplier did not issue an invoice, the UAE recipient have been allowed to retain a document - or a combination of documents – that reflects at least the following particulars:

If overseas suppliers did not issue an invoice or the aforesaid documents, the UAE recipient should either issue and deliver a valid tax invoice to itself for each imported service. Alternatively, the UAE recipient may seek administrative exception from FTA.

In another significant relief, UAE recipients would be eligible to recover input credit of the VAT paid under RCM on imported services even if it did not issue a tax invoice to itself. The UAE recipients should retain the invoice – or the combination of prescribed documents - issued by the overseas suppliers.

Needless to say, the UAE recipients should ensure to satisfy the other eligibility criteria for recovery of the input credit.

The recent public clarification deals only with the import of services. The clarification does not cover the compliance requirements  upon the import of goods into the UAE. Business should examine if the requirement to issue tax invoices to oneself still applies to the import of goods into the UAE.

If yes, would the input tax recovery be contingent on such tax invoices or on the import documents issued by the UAE custom authorities?

The public clarification is a pragmatic step in supporting UAE business community. Such clarifications brings certainty and help businesses to save costs. We are humbled that the analysis with ‘Gulf News’ has been of assistance in highlighting the technical challenges faced by UAE businesses.

It remains important for UAE businesses to correctly understand the tax provisions, and the context of guides and clarifications issued from time to time.