impact of the Public Clarification VATP036 on SWIFT messages
On February 5, 2024, the Federal
Tax Authority ("FTA") issued VAT Public Clarification on SWIFT
messages VATP036 ("clarification"), outlining the documentary
requirements for VAT recovery for UAE financial institutions (banks and
exchange houses) that receive interbank services from non-resident banks.
Summary of the Clarification
According to the FTA, the importer
of services must account for VAT using the reverse charge mechanism and is
responsible for all tax obligations, including issuing a tax invoice to
themselves. The tax invoice issued to itself should be used to recover VAT by
the importer. If the importer cannot issue a tax invoice to itself, it may use
an alternative supporting document to recover input VAT. Without a supporting
document, the importer of services may be unable to claim VAT in his VAT
The FTA clarifies that for
interbank services received from non-resident banks, SWIFT messages may be used
as a supporting document for input VAT recovery. In case a SWIFT message is
received, the importer is not anymore required to issue a tax invoice to
itself. The SWIFT message must include the following minimum information:
The Impact on UAE taxpayers
The clarification is specific to
SWIFT transactions, and the FTA does not state whether it applies to other
imported services. However, we believe that the principles laid out in the
clarification apply to other types of imported services as well.
The principles outlined in the
clarification may imply that any importer must issue a tax invoice to itself in
order to recover VAT on service imports, and that the importer may deviate from
this requirement only under exceptional circumstances. Given this principle, it
appears that the clarification's impact extends beyond the banking industry.
Taxpayers in the UAE do not
typically issue tax invoices to themselves for imported services.
The FTA appears to have made a
significant policy shift by requiring service importers to issue tax invoices
to themselves. As a result, this change is expected to have a significant
impact on taxpayers' overall service imports, in addition to SWIFT charges.
Given the FTA's change in policy in
the clarification, taxpayers may be required to issue tax invoices to
themselves for all services imported in order to recover input VAT, unless they
can provide an alternative document to support their input VAT claim. However,
for imports of services other than interbank charges, it is unclear which types
of documents can be used for input VAT recovery and what minimum requirements
must be included on such documents.
Recommended actions for taxpayers
Importers of services must
determine whether they can issue a tax invoice to themselves. If taxpayers
cannot issue tax invoices to themselves, they should consider using an
alternative document to support their input VAT claim. However, because the
minimum requirements for the alternative document are unclear, the input VAT
claim could be jeopardized. The FTA reserves the right to reject input VAT
claims for service imports if taxpayers do not retain the supporting
We believe that the principles
outlined in the clarification will also have a retrospective effect on
taxpayers. The reason is that the clarification is based on the FTA's
interpretation of current VAT laws and regulations, rather than any legislative
If taxpayers have not issued a tax
invoice to themselves for previous transactions, it will be practically
impossible to issue backdated tax invoices to itself. Taxpayers should reassess
whether they have received any alternative documents for importing services
from outside the UAE for previous transactions. Taxpayers should then determine
whether the alternative document is sufficient for input tax recovery. The
request for a Private Clarification may be a solution for taxpayers seeking
certainty on the supporting document used for input VAT recovery on imports.
If no (sufficient) supporting
document for service imports has been retained, the taxpayer should consider
correcting the input VAT claimed in his previous VAT returns. A voluntary
disclosure may be required to correct the historical VAT returns.