Following the new amendments incorporated into the UAE VAT decree law, which came into being in January 2023, businesses in the UAE must strive to know and understand how to navigate these new VAT regulations. 

Below is a summary of the primary modifications to the VAT Law, which took effect on January 1, 2023: 

1. An extension of the tax audit period

In general, a tax audit for a monthly or quarterly tax period cannot be carried out more than five years after the end of that tax period. 

However, if a taxpayer has received notice that a tax audit is underway within those five years, the actual audit might be carried out and/or completed within the next four years of receiving that notice.

2. Auditing tax after a voluntary disclosure

If a voluntary disclosure for a monthly or quarterly tax period is delivered in the fifth year following that tax period, the FTA will have an additional year to conduct a tax audit. 

In essence, the extra time allows the FTA enough time to process the voluntary disclosure and carry out further audits in response to such disclosures.

3. Tax Evasion 

A person who uses illegal methods to reduce their tax liability, avoid paying it, or obtain an otherwise ineligible benefit is considered to be engaging in tax evasion, regardless of whether they are registered or not.

A tax audit may be carried out in the event of tax evasion within 15 years of the conclusion of the tax period in question. 

4. Failing to register for VAT

People frequently think that if they don’t register for VAT, the tax authorities won’t find out about them. 

Within 15 years of the date on which the person should have been registered, the FTA may launch a tax audit if the person fails to get a tax registration. 

5. Positive news for 100% exporters 

Take note that it is not included in the law to burden business owners with ongoing VAT compliance if all of their supplies are zero-rated. These businesses have the choice to seek exemptions from VAT registration.

Companies that are already registered for VAT as a result of their ignorance of this advantageous option have to keep up with their regular VAT compliance.

Note: Businesses that have already registered for VAT may also request an exception after January 1, 2023.

6. Additional adherence for input credit on service import

Many businesses pay foreign service providers for their services based on agreements rather than asking them to generate invoices. 

As per the recently amended VAT laws, foreign service providers can only claim input credit for services imported after the taxpayers have received and kept the invoices in line with the VAT legislation.

7. Retention payments and the construction industry

VAT could still be payable if it exceeds 12 months between successive milestones of delivery of goods or services and the claim for retention payment.

There is now an additional specific date of supply for VAT purposes, which is one year from the date the goods or services were given.

8. Free of cost (FOC) supplies to related parties

The free (FOC) delivery of goods to related parties is an example of a deemed supply that could have resulted in a VAT liability under the previous laws.

According to the revised VAT legislation, if the recipient company is otherwise qualified to receive 100% input credit for its purchases, a business is unlikely to suffer a VAT liability when providing FOC goods or services to related parties.