Impact of Recent UAE VAT Amendment on Companies dealing in Hydrocarbons

Impact of Recent UAE VAT Amendment on Companies dealing in Hydrocarbons

In place of “any hydrocarbons,” the amendment clarifies that the reverse charge mechanism will only apply to “Pure hydrocarbons”.

Pure Hydrocarbons:

Any of the various pure compounds of the chemical formula consisting solely of hydrogen & carbon (CxHy).

Practical Example

• ABC Bitumen LLC (Hereinafter referred to as “The Company”) is a UAE mainland entity operating from the emirate of Dubai.
• The company is engaged in the supply of bitumen and bitumen products.
• The effective date of VAT registration of the company is 1st January 2023.
• The effective date of VAT registration of the company is 1st January 2023.
• The client gave the company a statement stating that the goal of the purchase is to resale the same products to another customer in their current condition.
• The company issued a Tax invoice with 5% VAT to the client for the goods delivered.
• The client rejected the Tax invoice based on the ground that bitumen is a hydrocarbon, hence reverse
  charge mechanism will be applicable to bitumen.

Whether the client’s argument is correct? Does bitumen fall within the reverse charge procedure outlined in Article 48 (3)?

Basis of Opinion

• Article 1 of the VAT Decree-Law
• Article 48 (3) of the VAT Decree-Law
• Article 48 (4) of the VAT Decree-Law

Application of the Law

Classification as Hydrocarbon:

The reverse charge mechanism provided by Article 48(3) of the Decree Law is a special mechanism that can be employed in certain circumstances, such as the supply of crude oil or hydrocarbons.

Hydrocarbons:

The term “Hydrocarbon” refers to any class of organic compound solely of the elements carbon (C) and hydrogen (H). On the basis that bitumen contains carbon, hydrogen as well as other components, bitumen is not a hydrocarbon.

Recommendation

In view of the aforementioned, bitumen and bitumen products are not considered to be hydrocarbons.

Note: Article 48 of the Decree Law is not limited to hydrocarbons, hence to the extent that bitumen is classified as, for example, crude oil, such supply may fall within the scope of Article 48(3) of the Decree Law and the company will have to apply the reverse charge mechanism where all other conditions are met.

 
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