Overview
On 2 October 2024 the UAE’s Federal Tax Authority (FTA) published an amended version of the VAT Executive Regulations which incorporates changes introduced by Cabinet Decision No. (100) 2024. The amendments are wide ranging and impact various industries, most notably the fund management and virtual asset sectors.
The amendments come into effect on 15 November 2024 with some changes being applicable retrospectively. Below we highlight certain noteworthy amendments.
Key Amendments
VAT exemption for fund management services
Article 42(2) and 42(3) read concurrently now provide a VAT exemption for the management of investment funds, which includes services provided by a fund manager independently for consideration to funds licensed by a competent authority in the UAE. Some examples of the type of services covered under the exemption are management of a fund’s operations, management of investments for or on behalf of the fund, and the monitoring and improvement of a fund’s performance.
This exemption provides a further tax concession to UAE based fund managers and makes the UAE tax landscape even more attractive to fund managers. We note that a local fund manager already enjoys potential relief from corporate tax where it constitutes a qualifying free zone person and derives qualifying income from fund management services. As a result some fund managers may therefore potentially be exempt from both corporate tax and VAT on their remuneration derived from fund management services.
The VAT exemption would also alleviate the VAT compliance requirements of a fund manager where it ceases to make taxable supplies and becomes eligible to potentially deregister for VAT. In our view the combined effect of these changes make the UAE a very attractive jurisdiction for those in the fund management industry.
Looking ahead, fund managers should consider whether they might be required to deregister for VAT and consider possible adjustments to their accounting and fee structures. The fund manager’s ability (if any) to claim input taxes would also need to be reconsidered in view of the fact that it will now be making exempt supplies.
Finally, the VAT exemption appears to be restricted to fund managers that manage funds which are licensed by a competent authority in the UAE. As such, UAE based fund managers that manage offshore funds which are not licensed in the UAE may not be covered by this exemption. It should be noted that ‘fund management services’ as defined under Ministerial Decision 265 of 2023 as read with the FTA’s Guide on Free Zone Persons rather examines whether the fund manager is appropriately regulated as a fund manager in the UAE. We are curious to see whether clarification is issued by the FTA on whether the VAT exemption and the FZ relief in relation to fund management services would be applied on a similar basis, i.e. having regard to whether the fund manager (not the fund) is regulated in the UAE.
VAT exemption for Virtual Assets
Article 42(2) and 42(3) has also been amended to include VAT exemptions for the following:
- transfer of ownership of virtual assets, including virtual currencies;
- conversion of virtual assets; and
- keeping and managing virtual assets and enabling control thereof.
Importantly, Article 43(3) only expressly considers the services under categories (i) and (ii) to be exempted, which could imply that services provided under the third category (i.e. in relation to the keeping and managing of virtual assets and enabling control thereof) would only be exempt where such services are not provided in return for an explicit fee or similar consideration. This distinction might prove to be particularly relevant for providers of cryptocurrency wallet or other custodial services, where a fee is charged for such services.
The VAT exemptions granted in respect of the transfer of ownership of virtual assets and/or the conversion of virtual assets applies with retrospective effect for services supplied on or after 1 January 2018. The retrospective application of this exemption has the potential to affect the historical VAT treatment applied by VAT registrants operating in the virtual asset industry and accordingly might require a reconsideration of the VAT positions adopted for tax years beginning 2018 onwards.
For the purposes of applying the exemption above, Article 1 of the Executive Regulations has introduced a definition of the term “Virtual Assets”. “Virtual Assets” is defined as “digital representations of value that can be digitally traded or converted and can be used for investment purposes, and does not include digital representations of fiat currencies or financial securities”.
It remains to be seen what type of instruments might fall within the ambit of a Virtual Asset and whether virtual currencies such as Stablecoins would be excluded. Having regard to the definition of “Virtual Assets” and the guidance published by the Financial Action Task Force (FATF) on the interpretation of this term, it is anticipated that Stablecoins should be included within the definition of Virtual Assets, but we await further clarification in this regard.
Reduced documentary evidence burden for exported goods
Article 30 of the Executive Regulations has been amended to provide taxpayers with more flexibility in relation to the zero-rating of exported goods by providing for reduced documentary requirements. Exit certificates are no longer required to substantiate the zero-rating of exported goods. For direct and indirect exports, the exporter must now retain any of the following:
- a customs declaration, and commercial evidence that proves the export;
- a shipping certificate and official evidence that proves the export; or
- a customs declaration that proves the suspension arrangement of customs duties, in case the goods are put into customs suspension.
Definitions of the terms ‘official evidence’, ‘commercial evidence’ and ‘shipping certificate’ have also been added to Article 30, thereby providing further clarity on the types of supporting documents that must be retained in order to avail the zero rate on exported goods.
Other Amendments
In addition to the specific changes discussed above, the FTA has enacted amendments applicable to the export of services, zero-rating of certain means of transport, exceptions for output tax on deemed supplies, exceptions of supply in relation to certain government real estate assets, the introduction of an input tax claim in relation to employer health insurance contributions and an expanded definition of ‘supply of goods’ for real estate, among others. Various definitions have also been removed from the Executive Regulations as these were already defined under the VAT Law itself.
Our Tax Services
Our Tax Team can guide you in identifying key areas of your business that will be impacted by the changes to the VAT Executive Regulations and assist you generally with specialist tax planning and the implementation of appropriate mechanisms to achieve optimal tax outcomes for your business.
Please feel free to contact Theunis Claassen, our Head of Tax, to arrange an initial discussion regarding your business and its taxes.