The Federal Tax Authority (FTA) has introduced meaningful changes to its VAT rules as of late 2024 and early 2025. Knowing these updates helps your business remain compliant and avoid penalties. This article provides a clear overview of these changes. Explore what these updates mean for your business and find actionable steps to become fully compliant with the latest changes.
How is the update going to affect you?
The FTA requires businesses to file accurate returns through the EmaraTax portal using VAT 201. Failing to file or filing incorrectly can attract hefty fines right from the first delay. The latest amendments, effective from 15 November 2024, reflect the most significant update since VAT was introduced in 2018. These changes require careful revisiting of your VAT compliance process.
What are the key VAT filing changes you should know?
The Cabinet Decision No. 100 of 2024 updated 35 amendments across 34 articles of the VAT executive regulations. These cover a range of areas such as:
- Handling supplies with multiple components: When a single composite supply, which consists of various components, lacks a principal component, the VAT treatment will now be based on the overall nature of the supply. For supplies with multiple components that are not considered a single composite supply, each component must be treated as a separate supply for VAT purposes.
- Applying the profit margin scheme: The "purchase price" under the profit margin scheme has been clarified to include not just the price of the good but also any associated costs and fees incurred during its acquisition. This change ensures a more accurate calculation of the margin on which VAT is due for eligible second-hand goods.
- Zero-rating of exports and transportation services: For exports of goods to be zero-rated, the new regulations provide more specific and alternative forms of evidence, such as shipping certificates, in addition to customs declarations and commercial evidence. Regarding international transportation, for domestic transport of goods to be zero-rated as part of a global journey, the service must be provided by the same supplier.
- VAT treatment for financial services and input tax apportionment: The definition of exempt financial services has expanded to include virtual asset transfer and conversion. Additionally, a new provision allows businesses to apply to the FTA to use the input tax recovery percentage from the previous year, which can simplify the calculation of recoverable input tax in the current period.
- Requirements around tax invoices and non-recoverable input tax: The timeframe for issuing a tax invoice has been set to 14 days from the date of supply. For non-recoverable input tax, an exception has been introduced allowing businesses to recover input tax on health insurance provided to employees and their families, subject to certain conditions.
To guide businesses, the FTA issued Public Clarification No. 40 (VATP040) on 14 March 2025. It interprets how these changes apply, including retrospective aspects.
What does this mean for your UAE VAT returns?
Here is how you, as an MSME that may operate in or sell to the UAE, should respond:
- Review your filings: Check whether your supply models match the updated definitions, especially if you sell bundled goods or provide services with consumables or software. The clarification helps you distinguish single composite supplies from multiple separate ones.
- Use Emaratax and file on time: You must lodge your VAT return within 28 days after the end of the tax period. If your business files quarterly, that means 28 April, 28 July, 28 October, or 28 January, depending on the quarter. Missing deadlines triggers penalties, such as AED 1000 initially, and AED 2000 for repeat violations within 24 months.
- Update your invoicing systems: Ensure your invoicing systems and documentation reflect the updated requirements. VAT invoices must include supplier and customer details, taxable amounts, VAT charged, and adhere to new guidelines on tax credit notes and apportionment.
- Prepare for audits or clarifications: With more detailed rules and public clarification, the FTA may audit or ask for justification of your filing. Keep solid documentation of exports, zero-rated sales, input tax calculations, and invoice records.
Get ready with your action plan
Here is a clear sequence you can follow:
- Audit current VAT processes: Map your supply chain, invoices, exports, and services against the updated rules.
- Update accounting tools: Configure accounting software to meet the new VAT treatment, ensuring invoice formats and tax categories align with FTA changes.
- Train your staff or partners: Anyone handling VAT, especially regarding exports, zero-rating, or profit margin schemes, must understand the new rules.
- Stay alert to deadlines: Set internal reminders for filing dates and monitor holiday calendars. If the 28th falls on a non-working day, file on the next business day.
- Retain records meticulously: Keep invoices, bank statements, export documents, previous returns, and pre-rectified calculations handy for any review.
Staying compliant with UAE VAT updates is vital to operating smoothly in the region. The changes effective mid-November 2024 and the FTA’s clarifications in March 2025 have raised the bar for documentation and filing accuracy. As an enterprise working in the UAE, you must act now to align your systems, file on time, and avoid penalties.
