CLARIFICATION ON EXCHANGE RATE

INTRODUCTION

Article 69 of the Federal Decree Law No 8 of 2017 required the amount that has been  stated on the issued tax invoice should be converted Into UAE Dirham as per the exchange rate approved by the UAE Central Bank at the date of supply where a supply was made in a currency other than UAE Dirham. Since the UAE Central bank began publishing exchange rates on May 17,2017 , the business wanted to seek clarity in respect of FTA,’s approach for the period from January 1 ,2018 to May 16,2018 and the approach which was to be adopted since the publication of exchange rates was by the UAE Central Bank . Thus in order to provide clarity to the businesses with regards to the FTA's approach for applying exchange rates to tax invoices for the period between January 1 to May 16,2018 the FTA has laid down a clarification called as VATP004.

TAX INVOICES ISSUED PRIOR TO MAY 17,2018

Where a tax invoice was issued prior to May 17 in a currency other than UAE Dirham, then the tax invoice should be converted into UAE Dirham using an exchange rate from a reliable source . However the source which has been used must be consistently used by the business for all the tax invoice issued in foreign currencies during the period from 1 January to May 16,2018 .

USE OF HISTORICAL RATES PUBLISHED BY THE CENTRAL BANK

For the period prior to May 17,2018 the UAE Central Bank has published historical rates on its website. The business should use the historical rates published by the Central Bank in the event any tax invoice is issued post may 17,2018 but where the date of supply is prior to May 17,2018.

USE OF EXCHANGE RATES FROM MAY 17,2018 ONWARDS

The exchange rate that has been published by the UAE Central Bank is to be used to convert the foreign currency to UAE Dirham where a tax invoice is issued from may 17,2018. The business are required to use the exact exchange rate published by the UAE Central Bank.

USE OF EXCHANGE RATES FOR IMPORT OF SERVICES

If in case the business imports services from a foreign suppliers that are subject to VAT under the reverse charge mechanism, then the business are required to use the UAE Central Bank exchange rate applicable on date of supply in order to calculate the VAT liability that is to be reported in the VAT return .

If in case, a foreign supplier who is not VAT registered in UAE issues a tax invoice which is not a tax invoice for UAE VAT purposes then it is acceptable to use the date of invoice as the date of supply of the imported service and the use of exchange rate which is applying as per that date .

CONCLUSION

This clarification would prove to be very helpful since it would help to resolve the practical difficulties which the business were facing in applying the UAE Central Bank daily rates . The businessman would also require to review the way they calculate invoices which are paid in foreign currency and would also be required to reissue the invoices that have been sent to the clients already.