January 1, 2023, will mark the beginning of a new UAE taxation period, with significant changes taking place in the VAT area. The majority of changes will be related to tax compliance and auditing, with some good news for the exporters in the UAE. Please find an overview of the changes below.
Tax audits
For companies with an assigned monthly or quarterly tax period, tax audits can only be conducted within five years of that period. However, the new rules specify that audits will be allowed to be conducted within four years after notifying the company or the individual about the planned audit, meaning that the auditing period can be extended this way significantly.
In cases of voluntary disclosures provided in the 5th year of the tax period covered by the data in the disclosure, the UAE tax authority FTA should get an additional year to conduct an audit of the period.
Specific rules apply to cases of tax evasion when a person or a company use illegal means to reduce their amount of tax or apply for a tax refund otherwise not applicable to that entity. When tax evasion is spotted, an audit can be conducted within 15 years from the completion of the tax period when the tax was evaded. Similar rules apply to entities that failed to register for VAT, counting from when the entity had but did not apply for a VAT permit.
Export updates
From January 2023, VAT-registered businesses will be able to apply for an exemption, allowing them to reverse the registration. This is related to the provision that permits companies whose entire supplies are zero-rated to avoid VAT registration with the help of exceptions from VAT registration.
Input credit
New requirements will be in place for companies buying services from foreign providers. It will be mandatory to require and maintain invoices for such services in order to later recover the taxes and stay compliant.
VAT on retention payments
Previously, there has been some confusion about the time of supply for paying VAT on retention payments in cases when the delivery of goods or services and the retention claims are further than 12 months apart. It has now been made clear that the date of expiration from the date of supply is one year.
Deemed supplies
New taxation amendments state that companies supplying goods free of charge to related parties are not liable for VAT if the recipient is entitled to recovering all input credit on the purchases.
Conclusion
Will those changes affect your business? If you’re not sure — let us know, and we will consult your business on these and other VAT-related questions.