United Arab Emirates Tax Updates 2023 April Edition

The Federal Tax Authority (FTA) has launched Muwafaq Package initiative

On 16 march 2023, The Federal Tax Authority (FTA) has launched Muwafaq Package initiative to facilitate doing business and tax compliance in the small and medium-sized enterprises (SMEs) sector, offering them a set of customised services, incentives, and privileges.

Muwafaq Package can be accessed by SMEs registered in the tax system in the UAE through the digital tax services platform EmaraTax, and stated that Muwafaq Package offers innoVATive tax solutions for SMEs registered in the tax system, as well as educational materials about tax systems. The Package was tailored to SMEs and designed to empower the people behind these projects to be a driving force for the national economy, and promote entrepreneurship and innoVATion.

Guidance on new VAT reporting requirement for e-commerce

The Federal Tax Authority (FTA) of the UAE released Public Clarification VATP033 on 24 February 2023 to provide further clarity on the concept of Electronic Commerce Medium. The clarification highlights that this medium encompasses a wide range of technologies, such as stores in the metaverse, smart kiosks, robotic devices, and more.

As explained in the public clarification, taxable persons supplying goods and services through e-commerce exceeding AED 100 million in a calendar year are referred to as "qualifying registrants".

The clarification also explains the criteria and conditions outlined in Article 3 of the decision and offers examples to better illustrate its application. It also explains the factors that should be considered when determining the Emirate in which the supply of goods or services should be reported.

According to the clarification, for services received, the place of residence of the customer shall take precedence over other factors, such as billing address or IP address.

For the supply of goods, the location specified by the customer shall take precedence over factors such as place of residence, billing address, or IP address.

The clarification is intended to provide businesses with clear guidelines on how to report their electronic commerce transactions for VAT purposes in the UAE.

Guide on input tax apportionment

In March 2023, the tax authority of the UAE released an updated value-added tax (VAT) guide on input tax apportionment, in accordance with Federal Decree-Law No. 8 of 2017 on VAT and its amendments, as well as the regulations.

This guide aims to assist in the application of VAT legislation regarding input tax apportionment and special methods for input tax apportionment. The previous guide, published in December 2019, has been replaced by this updated version.

The new guide offers the following guidance:

The scope of sectors eligible to use the outputs-based special apportionment method and sectoral special apportionment method has been extended.
The date on which a VAT registrant can apply to use a special apportionment method for the first time has been clarified.
The effective date of application of the approved special method has been clarified.
The requirements for re-application of a special apportionment method have been clarified.


Central Bank of UAE launched digital currency strategy

The Central Bank of UAE (CBUAE) has partnered with G42 Cloud and R3 to implement its Central Bank Digital Currency (CBDC) Strategy as part of its Financial Infrastructure Transformation (FIT) Programme.

This follows successful CBDC initiatives such as Project "Aber" with the Saudi Central Bank and the "mBridge" Project with several central banks. The first phase of the CBDC Strategy includes a soft launch of mBridge, proof-of-concept work for bilateral CBDC bridges with India, and proof-of-concept work for domestic CBDC issuance.

CBDC will address payment pain points, enhance financial inclusion, and strengthen the UAE's payment infrastructure. It will further strengthen the UAE's payment infrastructure, providing additional robust payment channels and ensuring a resilient and reliable financial system.

Public clarification on registration of warehouse keeper and designated zones

The Federal Tax Authority has issued a public clarification on Registration of Warehouse Keeper and Registration and Renewal of Designated Zone vide EXTP010.

The clarification details the method to register as a Warehouse keeper and the conditions and criteria to be met to convert a warehouse to a Designated Zone.

A Designated Zone (DZ) has to be renewed at least 20 working days before date of expiry, failing which the DZ will be treated as suspended. The warehouse keeper is also expected to monitor and notify the FTA in case of 20% increase in the originally reported month end stock, and the financial guarantee will be re-assessed based on the same.

This public clarification issued on 10 March 2023 replaces the earlier Clarification Renewal of Designated Zone Registration ((EXT005) and will come into effect from 01 April 2023.

Tax Treaty signed between Republic of the Congo and the UAE

On 13 March 2023, officials from the Republic of the Congo and the United Arab Emirates signed an income tax treaty.

The treaty is the first of its kind between the two countries and will enter into force after the ratification instruments are exchanged.

Corporate Tax