The Federal Tax Authority (“FTA”) recently published an updated version of the VAT Executive Regulations - Cabinet Decision No.(52) of 2017 on The Executive Regulation of the Federal Decree-Law No. 8 of 2017 on Value Added Tax. The updated version appears to incorporate the additional Cabinet Decision No. 46 of 2020, issued 4 June 2020.
While most of the changes in the VAT Executive Regulations are stylistic, the one change of note was made under Article 31(2). This change is specifically highlighted through a footnote to the relevant article referencing Cabinet Decision No. 46 of 2020 (dated 4 June 2020).
Article 31(2) of the VAT Executive Regulations qualifies whether a person is considered as “outside the State” for the purpose of zero rating services under Article 31(1)(a) of the VAT Executive Regulations. The change is as follows:
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.
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 or the presence is not effectively connected with the supply.
The change effectively narrows the scope and requires that both conditions now need to be satisfied to determine if a person is outside the UAE at the time the services are supplied. In other words, it suggests that where the person has a connection to the supply and is present in the UAE for any period of time during the supply of the services, zero rating of the services cannot apply.
Suppliers will need to consider the following to determine if the zero rate can apply to the export of services:
- whether the recipient of the services has a place of residence in the UAE, i.e. the place of establishment or fixed establishment most closely related to the supply; and
- where there is no place of residence in the UAE, if the recipient has any presence in the UAE that is connected to the supply and the duration of that presence.
A separate copy of Cabinet Decision No. 46 of 2020 is not available in the public domain and therefore the date of effect of the change is not yet confirmed.