FTA Provides Crucial Updates on Handling Imports of Goods and Services
Around a month ago, we highlighted a key tax challenge faced by businesses across the UAE, including those in mainland and free zones: Are VAT-registered businesses required to issue tax invoices to themselves for each import of goods and services?
At the time, various solutions were proposed, including seeking private clarifications or administrative exceptions from the Federal Tax Authority (FTA). However, what businesses really needed was clear, general guidance to streamline compliance, reduce administrative burdens, and avoid unnecessary costs.
The FTA has now provided that much-needed clarity through its latest VAT Public Clarification (VATP044). This clarification outlines how businesses should handle VAT accounting, issuance of tax invoices, and input tax recovery on the import of services into the UAE.
VAT on Imported Services: What Businesses Need to Know
When VAT-registered businesses in the UAE import services, they are considered to be making a taxable supply to themselves if the place of supply for those services is within the UAE. These businesses are required to account for VAT on such imported services under the reverse charge mechanism (RCM), reporting the transaction in Box 3 of their VAT return for the relevant tax period.
Issuing Tax Invoices to Oneself
In a major relief for businesses, the FTA clarified that UAE businesses are not required to issue tax invoices to themselves for imported services if they receive and retain invoices issued by the overseas suppliers. These invoices must include key details such as the description of the services provided and the amount paid.
If an overseas supplier does not issue an invoice, the UAE business can retain a document—or a combination of documents—containing the following details:
- Names and addresses of both the overseas supplier and the UAE recipient
- Date of issue of the document
- Date the service was completed
- Description of the service
- Consideration paid, currency used, and payment terms (if applicable)
In cases where neither an invoice nor such documentation is available, the UAE business would need to issue a valid tax invoice to itself or seek an administrative exception from the FTA.
Input Tax Recovery
Adding to the relief, the FTA confirmed that UAE businesses can recover input VAT on imported services even if they have not issued a tax invoice to themselves—as long as they retain the supplier-issued invoice or the required documentation. Naturally, the business must also meet the usual eligibility criteria for input tax recovery.
What About Imports of Goods?
It’s important to note that VATP044 applies only to the import of services. The clarification does not address the compliance requirements for the import of goods into the UAE. Businesses should therefore assess whether issuing tax invoices to themselves is still required when importing goods—and whether input VAT recovery depends on such invoices or on customs documents provided by UAE customs authorities.
A Welcome Move for UAE Businesses
This clarification is a practical, business-friendly step from the FTA, offering certainty on VAT compliance and helping businesses reduce operational costs.
For UAE businesses, staying updated with such clarifications is essential to ensure correct VAT treatment and compliance.
