The Federal Tax Authority (FTA) has released a Public Clarification VAT P044 providing clarity on accounting for output tax, issuing tax invoices and input tax recovery in respect of services imported from outside the UAE. The key aspects of the Public Clarification is summarized below:
1. Obligation to Account for VAT on Import of Services
- Where any services are received from outside the UAE (with place of supply in the UAE), the taxable service recipient in the UAE is liable to account of VAT under Reverse Charge Mechanism (RCM)
- In such cases, the service recipient is regarded as making a taxable supply to itself
- Consequently, the service recipient is responsible to account for the due tax on such services and report in its VAT return (as import of services)
2. Exception to Self-Invoicing requirement
- Since the service recipient is considered as supplying the services to itself, it is required to issue and deliver a valid Tax Invoice to itself in respect of each such services received
- As an administrative exception, the FTA accepts that the service recipient is not required to issue a Tax Invoice to itself on import of services if the service recipient:
- obtains and retains the invoice issued by the overseas supplier reflecting the details
- consideration is paid for such services;
- accounts for the correct VAT amount under RCM; and
- retains sufficient information to establish the particulars of such supplies
- In exceptional cases, where overseas supplier cannot issue invoices (like reinsurance business), any document (or a combination thereof) would be accepted and regarded as supplier’s invoice if that reflects at least particulars like name and address of foreign supplier, name of the UAE service recipient, description, value, etc.
- Above exception would not apply where the overseas supplier does not issue an invoice or combination of documents that are collectively regarded to be an invoice. In such cases, the service recipient would
- Brequired to issue a self-invoice for such services; or
- Apply for an administrative exception if the requirements of Article 59(7) of the Executive Regulation are met
3. Input Tax Recovery
- Service recipient can recover input tax on import of services in the first tax period or immediately following tax period in which it obtained the supporting document (e.g., self-issued tax invoice or invoice issued by the overseas supplier)
- Accordingly, input tax can be recovered even if recipient did not issue a tax invoice to itself, provided it retains overseas supplier invoice or combination of documents that are collectively regarded as invoice
Key Takeaways
- Through this Public Clarification, the Businesses are not required to issue self-invoice in case of import of services if overseas supplier is raising an invoice or similar document having appropriate details
- Imperative for the businesses to assess the current documentation being received from overseas supplier and whether the same meets the requirement
- Based on documents received from overseas supplier, evaluate the requirement for self-invoicing or seeking an administrative exception.