UAE VAT Update – June 2025

The Federal Tax Authority (“FTA”) recently released several publications clarifying the VAT treatment of transactions related to:

• the value of supply for barter transactions;
• the application of the reverse charge mechanism on precious metals and stones between registrants in the UAE; and
• accounting for output tax, input tax and issuing tax invoices for Concerned Services.

Below we provide a brief overview of these new FTA public clarifications.

FTA Public Clarification on Value of Supply – Barter Transactions (VATP042)

On 28 April 2025, the FTA issued Public Clarification VATP042 which addresses the VAT treatment of transactions involving the exchange of goods and/or services (i.e. barter transactions). VATP042 provides that the VAT treatment of a barter transaction is the same as a supply made for monetary consideration, albeit that for VAT purposes a barter transaction involves the making of at least two supplies (each party making a supply to the other). As such, special valuation rules apply to the non-monetary consideration.

Each party to a barter transaction is required to evaluate the VAT treatment of the goods or services supplied by them, namely whether the supply is taxable, zero-rated, exempt, or out of scope, subject to the normal VAT rules for the determination of each type of supply.

The value of a supply in a barter transaction is considered to be the market value of the non-monetary consideration received by a supplier, excluding the tax amount. Where the supplier receives both monetary and non-monetary consideration, the value of the supply is the monetary part plus the market value of the non-monetary part of the consideration, excluding the tax amount.

To determine the market value of the non-monetary part, the FTA provides the following principles:

• Principle 1: the market value of a supply of goods or services is the monetary consideration the supply would generally achieve if supplied in similar circumstances at that date in the UAE, being a supply freely made between persons who are not connected in any manner.
• Principle 2: where the market value cannot be determined based on the above, the market value is the monetary consideration which a similar supply would achieve if supplied in similar circumstances at that date in the UAE, being a supply freely made between persons who are not connected in any manner.
• Principle 3: Where the market value cannot be determined based on the above two principles, the market value shall be determined by reference to the replacement cost of identical goods or services, with such supply being offered by a supplier who is not connected to the recipient of goods or services in any manner.

These valuation rules apply to the supplies made by both parties as part of the barter transaction.

VATP042 also confirms that where the parties to a barter transaction are both registrants, they will each be required to issue a tax invoice to the other party in accordance with the general principles regulating tax invoices.

FTA Public Clarification on Cabinet Decision No. 127 of 2024 (VATP043)

On 30 April 2025, the FTA issued Public Clarification VATP043, which outlines the FTA’s interpretation of recently released Cabinet Decision No. 127 of 2024 (CD127) on the application of the reverse charge mechanism (RCM) on precious metals and precious stones between registrants in the UAE for the purposes of VAT. CD127 replaced Cabinet Decision 25 of 2018 (CD25) with effect from 26 February 2025.

The FTA provides that CD127 now expands the scope of the domestic RCM to include specified precious metals, precious stones, and jewellery made thereof (Precious Goods), provided that the value of such metals or stones is higher than the value of other components. These include:

• specified precious metals: gold, silver, palladium, and platinum
• specified precious stones: diamonds (natural and manufactured/synthetic), pearls, rubies, sapphires and emeralds

Note that with the exception of gold and diamonds (and jewellery made thereof), the supply of Precious Goods before 26 February 2025 does not qualify for the domestic RCM but rather falls under the scope of normal VAT rules, which requires the supplier to account and report for VAT on such supplies.

Application of the RCM

For domestic RCM to apply on the supply of Precious Goods the following conditions must be met:

• the recipient of the Precious Goods must be registered for VAT within the UAE;
• the recipient must intend to resell the Precious Goods or use them to produce or manufacture Precious Goods (the definition of “resell” and “production”/”manufacturing” can be found in VATP042);
• the recipient must provide a written declaration before the date of supply confirming that:
  1. the recipient is registered for VAT within the UAE;
  2. the recipient intends to resell the Precious Goods or use them to produce or manufacture Precious Goods; and
• the supplier must, before the date of supply, receive and keep the declaration from the recipient and verify that the recipient is registered for VAT (via the FTA’s approved means).

Where the above are met, the recipient (not the supplier) must account for the VAT on the value of the Precious Goods they received. Suppliers must, however, fulfil the requisite compliance requirements such as the issuance of a tax invoice.

The RCM will not apply in the following cases (among others) where:

• the recipient is not registered for VAT in the UAE
• the supply of the Precious Goods constitutes a zero-rated direct or indirect export
• the supply of the Precious Goods is out of scope

Where the recipient fails to submit the required declaration, the domestic RCM will not apply and the supplier will be required to impose VAT on the supply of the Precious Goods. No input tax may be recovered by the recipient in such cases, even if a tax invoice is issued by the supplier.

Making Charges

The application of the RCM is restricted to the supply of Precious Goods and does not apply to services such as the making/ manufacturing of jewellery (also known as Making Services) unless the services are part of a single composite supply of Precious Goods.

If a supplier charges a single price for the Precious Goods, including the Making Service, the supply will be regarded as a single composite supply (which may qualify for the RCM) if all the following are met:

• the supply consists of a principal component (the Precious Goods) and ancillary/incidental elements such as Making Service, or these components are so closely linked that they constitute a single composite supply which would be impossible or unnatural to split;
• the price for the Precious Goods and related services are not charged separately; and
• the Precious Goods and related services are supplied by the same supplier.

Where the Making Services is regarded as a separate supply (i.e. where the supply does not constitute part of a single composite supply), the supplier will be required to issue a Tax Invoice in respect of the Taxable Supply. Provided where the Recipient is a Registrant, it would be able to claim the Input Tax on this supply in accordance with the general Input Tax Recovery rules.

FTA Public Clarification on Concerned Services – Accounting for Output Tax, issuing Tax Invoices, and Input Tax Recovery (VATP044)

In VATP044 the FTA clarifies the requirement for taxable persons to account for output tax and issue tax invoices in respect of imported Concerned Services. The FTA also provides commentary on the documentary requirements for recovering input tax on such services.

Output Tax

Taxable persons who receive services from outside the UAE, where the place of supply of such services is determined to be in the UAE, are regarded as making taxable supplies to themselves, unless such services would be exempt had they been supplied in the UAE. Consequently, the taxable person is required to account for the due tax on the service imported and report the value of such services in its VAT return for the tax period during which the date of supply occurs.

Issuance of Invoice

Registrants who import Concerned Services are required to issue and deliver a valid tax invoice to themselves in respect of each Concerned Service received. However, the FTA accepts that under Article 59(7)(b) of The Executive Regulation of the Federal Decree-Law No.8 of 2017 on Value Added Tax, the recipient is not required to issue a tax invoice to itself in respect of Concerned Services if:

• the recipient obtains and retains the invoice issued by the overseas supplier reflecting the details and consideration paid for the Concerned Service;
• the recipient accounts for the correct VAT amount under the RCM in respect of the Concerned Service; and
• the recipient retains sufficient information to establish the particulars of such supply.

VATP044 also outlines exceptional cases that would be eligible for an administrative exception in the event that a supplier does not issue an invoice (such as in the case of reinsurance services). In such cases a document that reflects certain particulars (as set out in VATP044) would be regarded as the supplier’s invoice.

Recovery of Input Tax

Registrants are eligible to recover input tax to the extent the Concerned Services are used (or intended to be used) to make taxable supplies, provided the relevant supporting documents are obtained and retained. The Registrant will be able to recover the Input Tax in the first Tax Period (or the immediately following Tax Period) in which it obtained the relevant supporting documentation and paid the Consideration.

The FTA clarified that a recipient may be eligible to recover input tax even if it did not issue a tax invoice to itself, provided that it retains the invoice issued by the overseas supplier (or combination of documents that are collectively regarded to be such invoice).

For input tax recovery purposes, the recipient is regarded as having made payment if it pays or intends to pay the consideration within six months of the agreed date of payment.

Our Tax Services

Our Tax Team can assist you in better understanding the impact of these recent changes on your tax affairs and provide tailored advice to ensure optimal tax structuring.

We provide clients with specialist tax advice, planning and implementation support to achieve optimal tax outcomes for their business and personal interests in the UAE. Should you require support, please contact Theunis Claassen, our Head of Tax, to arrange an initial discussion.