VATP041

Issue

UAE Banks and exchange houses (collectively referred to as 'Financial Institutions') incur international bank charges from banks outside the UAE as a result of using the Society for Worldwide Interbank Financial Telecommunications ('SWIFT') communication system with these banks.

In practice, such international bank charges, and their underlying transactions, are evidenced by 'Swift Messages' which do not meet all the requirements to constitute Tax Invoices for UAE VAT purposes.

Financial Institutions may only recover VAT accounted for under the reverse charge mechanism in respect of Services received from banks outside the UAE to the extent such costs are incurred to make Taxable Supplies, provided that the Financial Institutions obtain, and retain the required supporting documents.

This Public Clarification clarifies the Federal Tax Authority's ('FTA') position on two distinct matters, i.e. the requirement to issue Tax Invoices in respect of SWIFT Messages, and the documentary requirements for Input Tax recovery in respect of these Services.

Kindly note that this Public Clarification applies only to SWIFT Services and not to any other Concerned Services.

Summary

As Taxable Persons, when Financial Institutions receive interbank Services from banks outside the UAE, they are regarded as making Taxable Supplies to themselves and are responsible for all applicable Tax obligations, including having to account for the Due Tax. As a consequence, the Financial Institutions are required to issue Tax Invoices to themselves in respect of these supplies.

Considering the volumes of SWIFT Messages that Financial Institutions receive on a daily basis, it would be impractical to require the Financial Institutions to issue a Tax Invoice to themselves for each SWIFT transaction.

Provided the SWIFT Message contains sufficient information to establish the particulars of the supply, UAE Financial Institutions are not required to issue a Tax Invoice to themselves in respect of interbank services received from banks outside the UAE for which such SWIFT Message has been received.

Financial Institutions may only recover the related Input Tax to the extent the cost is incurred to make Taxable Supplies, provided that the required supporting evidence is retained.

Detailed analysis