| Major Clarifications provided by Federal Tax Authority |
The Federal Tax Authority (FTA) and Ministry of Finance (MOF) have, in recent times, released various Public Clarification, Decisions, and User Guide for issues faced by businesses and to increase compliance in UAE. The list of same is as follows:
- User Guide - Raqeeb Program (Whistleblower Programme for Tax Violations and Evasion)
- Public Clarification on Crypto Currency Mining
- Mechanism for Correction of Error or Omission in the Tax Return Submitted to the Federal Tax Authority for VAT
- Decision No. (127) of 2024 on the Reverse Charge Mechanism for Precious Metals and Stones
We have summarised the key highlights for each of the above.
- FTA has introduced the Whistleblower Framework under the Raqeeb Programme to enhance tax compliance and promote transparency in the UAE.
- This initiative allows individuals to report cases of tax evasion or non-compliance, such as failure to register for VAT or issuing invalid tax invoices, in a secure and confidential manner.
- The framework incentivizes whistleblowing by offering monetary rewards to eligible informants whose credible leads result in tax recovery exceeding AED 50,000.
- To ensure the integrity of the process, all leads must be evidence-based, and the confidentiality of informants is guaranteed throughout the investigation.
- With the Raqeeb Programme, the FTA reinforces its commitment to maintaining a fair and competitive business environment, encouraging accountability and compliance with federal tax legislation.
- FTA has clarified the VAT tretment of cryptocurrency mining activities in the UAE.
- Mining performed on behalf of another person for a fee constitutes a taxable supply of services. Where the recipient is in the UAE, the supply is subject to VAT at the standard rate unless it qualifies for zero-rating under Article 31 of the VAT Executive Regulation (e.g., when supplied to non-residents and meeting specific conditions).
- When a UAE business receives mining services from a non-resident, it must account for VAT via the reverse charge mechanism if VAT-registered. For non-VAT-registered businesses receiving services, the non-resident supplier must register for UAE VAT and charge VAT on the services provided.
- Input tax incurred on mining activities (e.g., VAT on hardware, real estate rentals, or maintenance) may be recoverable only if the person is registered for VAT and the costs relate to taxable supplies.
- Mining for personal purposes does not qualify for input tax recovery, as it does not involve taxable supplies.
- Businesses engaged in mining must ensure proper VAT compliance by retaining valid tax invoices and other supporting documentation.
FTA has issued guidance on handling errors or omissions in VAT returns under Federal Decree-Law No. 8 of 2017, where no difference in due tax arises. Taxpayers are required to submit a Voluntary Disclosure in cases specified in Article 2 of the Decision. These include:
- Reporting standard-rated taxable supplies in the reporting box of the wrong Emirate.
- Incorrect reporting of zero-rated taxable supplies, whether understated or overstated.
- Incorrect reporting of exempt supplies, whether understated or overstated.
This guidance seeks to enhance compliance and ensure the integrity of VAT reporting. The decision takes effect from 1 January 2025.
- UAE's Ministry of Finance has issued Cabinet Decision No. (127) of 2024, expanding the Reverse Charge Mechanism (RCM) to include precious metals and stones in business-to-business transactions. The same is effective from 25 February 2025.
- Previously vide Cabinet Resolution No. (25) of 2018, the RCM applied only to gold and diamonds.
- Under the new decision, VAT-registered buyers, instead of suppliers, will account for VAT on both the sale and purchase of goods, provided both parties are registered for VAT in the UAE.
- This change simplifies compliance, improves cash flow, and strengthens the competitiveness of the sector, aligning with international best practices and supporting business growth in the precious metals and stones industry. Further, the roles and responsibilities of the supplier and recipient have also undergone in the said decision when compared to the earlier one, i.e., written declarations, supplier's responsibility, application in case of non-compliance, and details of the exception.
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Our Comments
Basis the above, the business shall be required to conduct a detailed impact assessment as the amendments would impact:
- Existing contracts - which will need to be amended,
- Policy changes - Like the change in the manner of raising an invoice,
- Revisiting the tax position already undertaken,
- Maintenance of requisite documentation and records.
Accordingly, to avoid penal consequences, businesses are advised to ensure that changes in the underlying documentation and processes are carried out before the law comes into force.
Further, it is expected that changes that could be introduced in Decree-Law or Public Clarification shall be issued to provide clarity on various changes that have been introduced.
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