UAE VAT: Maximize Input Tax Recovery on SWIFT – New Rules
SWIFT Charges and VAT: Clarifying Invoicing and Input Tax Recovery for Banks
- Public Clarification VATP041 by the Federal Tax Authority (FTA) replaces Public Clarification VATP036, addressing VAT treatment of international bank charges incurred through the SWIFT system.
- This update focuses on how Financial Institutions can recover VAT on these charges and the required documentation.
Understanding SWIFT Charges and VAT
- UAE Financial Institutions incur international bank charges when using the SWIFT system for transactions with banks outside the UAE.
- While SWIFT messages evidence these charges, they don’t meet all the requirements of a valid Tax Invoice under UAE VAT law.
- Financial Institutions can recover VAT paid under the reverse charge mechanism only if these costs relate to making taxable supplies. They must also hold the necessary supporting documents.
- This clarification applies specifically to SWIFT services, not other services.
Key Changes: Tax Invoices and SWIFT Messages
- Typically, Financial Institutions are required to issue Tax Invoices to themselves for these SWIFT-related supplies.
- However, the FTA acknowledges the administrative burden on Financial Institutions to issue invoices for the high volume of daily SWIFT transactions.
- To simplify this, a SWIFT Message is now acceptable as sufficient evidence of the supply, provided it contains specific information.
Required Information in a Qualifying SWIFT Message
- For a SWIFT Message to be accepted as valid evidence, it must include:
- Name and address of the bank outside the UAE (SWIFT sender/supplier).
- Name of the UAE Financial Institution receiving the service (SWIFT receiver/customer).
- Date of the transaction.
- SWIFT Message reference number.
- Transaction reference number.
- Description of the transaction.
- Consideration charged and currency used.
- A SWIFT Message containing all the above information is termed a “Qualifying SWIFT Message.”
- If a Financial Institution has a Qualifying SWIFT Message, it does not need to issue a Tax Invoice to itself.
Input Tax Recovery Conditions
- Financial institutions can recover Input Tax on SWIFT charges only if the cost was incurred for making Taxable Supplies.
- A Qualifying SWIFT Message is acceptable evidence under Article 55(1)(a)(3) of the VAT Decree-Law to support Input Tax recovery.
- However, Input Tax recovery is allowed only to the extent that the SWIFT costs are directly linked to making Taxable Supplies.
Conclusion
- VATP041 clarifies specific aspects of the VAT treatment of SWIFT charges, aiming to balance compliance with practical considerations for Financial Institutions.
- Financial institutions must ensure they obtain and retain Qualifying SWIFT Messages and properly link the costs to taxable supplies to recover Input Tax.
Useful Links and References:
