The Federal Tax Authority (FTA) of the UAE has issued Public Clarification No. VATP040, which provides much-needed clarity on recent amendments to the VAT Executive Regulations. These changes came into effect on 15 November 2024 and directly impact how businesses in the UAE should account for VAT in various scenarios.
This clarification aims to simplify complex areas such as composite supplies, zero-rating for international transactions, and input tax treatment, ensuring businesses remain compliant with the evolving VAT framework.
1. Composite Supplies & Multiple Components
The FTA has updated the rules regarding composite supplies—cases where a transaction includes multiple goods or services provided together.
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Businesses must now determine whether these supplies should be treated as a single taxable supply or separate supplies for VAT purposes.
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This impacts VAT calculation, especially when one part of the supply is exempt or zero-rated while the other is taxable.
Example: If a company provides equipment along with mandatory installation, the VAT treatment now requires more careful assessment to avoid errors.
2. Zero-Rating for International Transport & Exports
The clarification provides new definitions and rules for zero-rated supplies:
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International transport services and export of goods and services will now be assessed under more precise criteria.
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Businesses must ensure documentation and contracts strictly meet FTA’s revised requirements to apply zero VAT.
This update reduces ambiguity for companies engaged in cross-border trade, logistics, and shipping operations in the UAE.
3. Input Tax Apportionment & Non-Recoverable VAT
The FTA has refined rules for businesses that incur VAT on expenses used for both taxable and exempt activities:
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Companies must now follow updated methods for input tax apportionment, ensuring VAT recovery is proportional.
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Some categories of input VAT are now explicitly defined as non-recoverable, making compliance easier but stricter.
This directly affects sectors like real estate, healthcare, and financial services, where both exempt and taxable transactions are common.
4. Exemptions & Special Cases
The clarification also outlines updates on VAT exemptions, ensuring businesses do not misapply zero-rating or exemptions. Special attention is given to:
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Financial services
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Residential property supplies
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Certain government-related transactions