October 30, 2024

FDL No. 16 of 2024

Definitions, Articles 55, 65, 70 and 76

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January 1, 2026

FDL No. 16 of 2025

Articles 48, 54 (bis), 74 and 79 (bis)

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September 2026

VATP046 issued

FTA position on both sets of changes

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October 1, 2026

FTA Decision 13 of 2026

Verification duty under Article 54 (bis)

Definitions: Non-Resident and Fixed Establishment

• The definition of “Non-Resident” was amended to clarify that a Person is regarded as a resident where that Person has a Place of Establishment or Fixed Establishment in the UAE, regardless of whether the Person owns the place or not.
• The FTA's example: where a foreign Business's employees regularly work from its client's premises in the UAE, the presence of those employees together with the technology resources they use (for example, a mobile phone or computer) would create a Fixed Establishment.
• In such instances, the foreign business is not regarded as a Non-Resident for VAT purposes. This reads wider than the fixed-place Permanent Establishment test under Corporate Tax, so existing Non-Resident positions are worth revisiting.

New definitions for the Electronic Invoicing System

• “Electronic Invoicing System”, “Electronic Invoice”, and “Electronic Credit Note” were introduced in Article 1 to facilitate the introduction of the system.
• An Electronic Invoice is one issued, transmitted, and received in a structured electronic format that enables automatic and electronic processing, in accordance with the Electronic Invoicing System.
• “Tax Invoice” and “Tax Credit Note” were amended to include their electronic equivalents, but only where the requirements of Articles 59 and 60 of the Executive Regulation are met.
• The FTA is explicit on the consequence: an Electronic Invoice does not automatically constitute a Tax Invoice, and an Electronic Credit Note does not automatically constitute a Tax Credit Note.

Recovery of Recoverable Input Tax (Article 55)

• Article 55(1)(c) now adds a condition that a Taxable Person must retain a Tax Invoice in the format of an Electronic Invoice, where an Electronic Invoice is required to be issued or has been issued in accordance with the Electronic Invoicing System, to be able to recover the related Input Tax.
• A paper or PDF copy will therefore not support recovery once a transaction falls inside the system.
• New Article 55(1)(d) allows the Cabinet to prescribe any other conditions for Input Tax recovery, so further requirements can follow without a change to the Decree-Law.

Issuing obligations and penalties (Articles 65, 70 and 76)

• New Article 65(5) and new Article 70(4) require Registrants subject to the Electronic Invoicing System to issue and transmit Tax Invoices and Tax Credit Notes in the form of Electronic Invoices and Electronic Credit Notes.
• Registrants who are not subject to the system must continue to issue and deliver Tax Invoices and Tax Credit Notes under the current general VAT invoicing rules.
• Amended Articles 76(4) and 76(5) confirm that failure to issue a Tax Invoice, Tax Credit Note, or any other alternative document within the legally prescribed period will result in an Administrative Penalty Assessment.

Reverse Charge Mechanism (Article 48)

• Article 48(1) was amended to remove the requirement for a Taxable Person to issue a Tax Invoice to himself when importing Concerned Goods or Concerned Services.
• The Taxable Person is still required to account for VAT on the supply and to retain the relevant supporting documentation, as determined in the Executive Regulation.
• VATP046 confirms the relief applies only to Goods and Services imported on or after January 1, 2026. For Concerned Services imported before that date, the FTA points to VATP044, and for Concerned Goods to VATP045 (MIDDLE EAST TAX ALERT | UAE | FTA Clarifies Output Tax, Self-Invoicing and Input Tax Recovery for Concerned Goods Imported Before 1 January 2026 (VATP045) | Alvarez & Marsal | Management Consulting | Professional Services)

Excess Recoverable Tax (Article 74)

• Under Article 74(2) the FTA offsets a Taxable Person's excess Recoverable Tax against any Payable Tax or Administrative Penalties imposed, and only the remaining amount can be claimed as a refund.
• Amended Article 74(3) introduces a five-year time limit to apply for that refund, calculated from the end of the Tax Period from which the excess Tax arose.
• FTA’s example: a return for the Tax Period ending January 31, 2026, with a credit balance can carry it forward to January 31, 2031. If no refund request is submitted and the balance is not used to settle outstanding Tax or Administrative Penalties by that date, the Taxable Person forfeits it.
• Where only part of a credit balance is used within the period, the right to request a refund of, or to use, the remaining unused balance lapses at the end of five years.

Article 54 (bis) (1): the deduction will be rejected

• Applies where the FTA establishes that the Taxable Person was aware, upon deducting the Recoverable Input Tax, that the supply received was part of a supply or chain of supplies related to Tax Evasion.
• The wording is mandatory. Once actual awareness is established, the FTA has no discretion to allow the deduction.

Article 54 (bis) (2): the deduction may be rejected

• Applies where the FTA establishes that, based on the circumstances of the supply, the Taxable Person should have been aware of the relation to Tax Evasion.
• Here, the FTA has a discretion, which places real weight on the quality of the evidence a business can produce at the time of audit.

A&M COMMENTS: Summary of action points from VATP046

• Identify which entities will be Registrants subject to the Electronic Invoicing System and test readiness against Articles 65(5) and 70(4), keeping the Article 76 penalty exposure in view.
• Retest Non-Resident and Fixed Establishment positions for group entities whose staff work regularly from customer premises in the UAE.
• Confirm that Input Tax recovery controls will capture and retain Electronic Invoices in the required format, in line with Article 55(1)(c).
• Review open credit balances and refund positions against the five-year limit in Article 74(3), starting with the oldest Tax Periods.
• Document a supplier and supply verification process, with retained evidence, ahead of October 1, 2026, under FTA Decision No. 13 of 2026.