Federal Tax Authority issued Public clarification regarding use of exchange rate that was a question of great concern for business engaged in import and export activities:
Relevant Reference to the Law:
Article 69 of Federal Decree-Law No. (8) Of 2017 requires that where a supply is made in a currency other than UAE Dirham the amount stated on the tax invoice shall be converted into UAE Dirham at exchange rates approved by UAE Central Bank at the date of supply.
- UAE Central Bank did not publish any exchange rates up to May 16, 2018 so how to determine exchange rates up to May 16, 2018.
- How to use the exchange rates published by UAE Central Bank from May 17, 2018 onward. Important points to consider.
- Use of Exchange Rate for Import of Services
- Use of Exchange Rate for Import of Goods
The points are explained below for the purpose of understanding:
UAE Central Bank did not publish any exchange rates up to May 16, 2018 so how to determine exchange rates up to May 16, 2018:
Where tax invoice was issued before May 17, 2018 the amount on the invoice should have been:
- Converted using a reliable source
- Consistently used by the supplier from January 01, 2019 to May 16, 2018
Examples of Reliable Sources for the purpose of exchange rates are:
- Thomson Reuters
- Exchange Rates Published by any UAE Bank
How to use the exchange rates published by UAE Central Bank from May 17, 2018 onwards. Important points to consider:
- Businesses must use exact exchange rates published by UAE Central Bank, that should include the same number of decimals as published e.g. 3.6725000 exactly same shall be used and not rounded off to 3.67
- UAE Central Bank publishes rate 6.00 pm every day where tax invoice needs to be issued before that rates published on Central Bank website can be used at the time of issue of tax invoice.
Use of Exchange Rate for Import of Services:
Import of services are accounted for in the return under reverse charge mechanism normally. These invoices as mentioned above needs to be converted at UAE Central Bank rate into Dirhams at the date of invoice.
Use of Exchange Rate for Import of Goods
In case of import of Goods, the value of goods is converted intro Dirhams by custom department in customs declaration form. The same value is automatically populated in Box 6 of VAT Return. So taxpayers can use the same value and there is no need to convert again using the UAE Central Bank Rate.