Introduction
On 30 May 2025, the UAE Federal Tax Authority (“FTA”) issued Public Clarification VATP044, shedding light on the obligations surrounding output tax accounting, issuance of tax invoices, and input tax recovery in relation to Concerned Services—i.e., “Services that have been imported, where the place of supply is considered to be in the [UAE], and would not be exempt if supplied in the [UAE]”.
While the Clarification is grounded in the provisions of Federal Decree-Law No. 8 of 2017 on Value Added Tax (“Decree-Law”) and Cabinet Decision No. 52 of 2017 on its Executive Regulation, its significance lies in its application of established legislative discretion—particularly Article 59(7)(b) of the Executive Regulation. Rather than introducing interpretive flexibility, the FTA is exercising its authority as contemplated by the legislation to determine cases where issuance of a tax invoice may be waived, thereby offering clear and practical guidance that aligns with the law while reducing unnecessary administrative steps for registrants in specific, well-defined circumstances.
At Habib Al Mulla and Partners, we believe this guidance is not only a clarification but also reflects a measured decision-making approach by the FTA, similar to previous practical decisions by the FTA, such as allowing businesses that operate vending machines not to issue tax invoices in certain cases. This article provides further detail and analysis in respect of the clarification, situates it within the legislative framework, and highlights why this is an important development for UAE businesses.
Defining Concerned Services: Reverse Charge and Supply to Self
The Clarification reiterates a key principle of the UAE VAT regime: when a VAT-registered person receives services from abroad—classified as Concerned Services—and the place of supply is the UAE, such services are treated as if the recipient is supplying the services to themselves.
This mechanism, known as the reverse charge, requires the recipient to:
- Account for output tax on the supply;
- Report the transaction under Box 3 of the VAT return;
- Issue a tax invoice to themselves, unless exempted from doing so by the FTA.
This treatment is grounded in Article 48(1) of the Decree-Law, which provides that a taxable person importing services for their business shall be regarded as making a taxable supply to themselves and must account for the due VAT accordingly.
Relaxation of the Tax Invoicing Obligation
While the legislative default under Article 65(1) of the Decree-Law is clear—tax invoices must be issued by registrants and delivered to recipients of taxable supplies—the FTA acknowledges the administrative inefficiencies and redundancies involved in requiring a business to issue invoices to itself for the import of concerned services.
Thus, VATP044 introduces a significant relaxation, wherein the FTA now accepts that the recipient need not issue a tax invoice to themselves if the following conditions are met:
- VAT is correctly accounted for under the reverse charge mechanism;
- The overseas supplier has issued an invoice; and
- The recipient retains this invoice, which includes the necessary particulars (name, address, description of services, amount, currency, payment terms, etc.) – or, in exceptional cases, sufficient documentary evidence to establish the details of the supply.
This is a material relaxation, facilitated under Article 59(7)(b) of the Executive Regulation, which empowers the FTA to determine that a tax invoice need not be issued where sufficient records exist and issuing an invoice would be impractical.
Legal Basis: Discretion under Executive Authority
Although framed as a Clarification, VATP044 is effectively anchored in legislative delegation. Article 59(7)(b) clearly authorizes the FTA to exempt taxable persons from the invoicing requirement in cases where:
- Adequate records exist to substantiate the supply; and
- Issuance or delivery of a tax invoice is impractical.
This mirrors the FTA’s earlier approach in 2022, when it issued a formal decision waiving the tax invoice requirement for vending machines, recognizing the difficulty in generating and delivering invoices for self-service transactions.
The legislative discretion afforded to the FTA in such cases is vital in ensuring that VAT compliance remains both principled and operationally feasible.
Exceptional Circumstances and Administrative Exceptions
The Clarification also outlines scenarios where the supplier fails to issue any invoice, such as in reinsurance services. In such cases, the FTA provides a fallback mechanism: a combination of documents reflecting minimum mandatory particulars may collectively serve as an invoice.
Where this documentary threshold is not met, recipients may apply for an administrative exception, again under Article 59(7) of the Executive Regulation. The FTA’s flexible yet controlled approach in such cases ensures that the integrity of the VAT system is preserved, while avoiding undue hardship for compliant businesses.
Input Tax Recovery: Evidentiary and Payment Conditions
The second half of VATP044 addresses input tax recovery for Concerned Services. The right to recover input VAT is available only to the extent that the services are used (or intended to be used) to make taxable supplies.
The Clarification reaffirms the two conditions for recovery under Articles 54 and 55 of the Decree-Law:
- The recipient must hold the relevant supporting documents, such as the supplier’s invoice or accepted equivalents;
- The recipient must have paid or intend to pay the consideration within six months from the agreed payment date, as permitted by Article 54(2) of the Executive Regulation.
Importantly, even if the recipient does not issue a tax invoice to themselves, the input tax remains potentially recoverable provided that documentation is retained and the reverse charge has been duly accounted for.
A Positive Development for Taxpayers
VATP044 is a testament to the FTA’s constructive and responsive approach to tax administration. By acknowledging practical difficulties and providing a structured exemption mechanism, the FTA offers a balanced interpretation that upholds legal requirements while minimizing unnecessary administrative burden.
This flexibility is particularly welcome at a time when UAE businesses continue to deepen their cross-border service engagements. The Clarification ensures that the spirit of the law is maintained without rigidly enforcing form over substance.
Conclusion
Public Clarification VATP044 represents more than a mere explanation—it is a reflection of the FTA’s mature, responsive governance of the UAE’s VAT regime. Through informed use of its discretionary powers under the governing legislation, the FTA has demonstrated regulatory sensitivity to practical business realities, without compromising tax compliance.
For UAE businesses that routinely import services, this development offers significant procedural relief and reduced compliance costs. It also serves as a useful reminder that while tax obligations are binding, the UAE’s tax authority is prepared to interfere – where legislatively permissible – to support the taxpayer community in tax challenges they may face.
This Article is prepared by the Tax Department at Habib Al Mulla & Partners Law Firm, led by Mohamed El Baghdady, Partner and Head of Tax and Financial Crimes.
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For further information, please contact, Mohamed El Baghdady, Partner, Head of Tax and Financial Crimes, on mohamed.elbaghdady@habibalmulla.com.
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The content provided in this article is intended for informational purposes only and does not constitute legal advice. While every effort has been made to ensure the accuracy and completeness of this information, the article does not offer a guarantee or warranty regarding its content. The matters discussed in this article are subject to interpretation, and legal outcomes may vary based on specific facts and circumstances. We recommend that readers seek individual legal counsel before making any decisions based on the information provided. If you require specific legal advice, please contact us directly.
