VAT Implications for SWIFT Transactions in UAE
Financial institutions in the UAE have a big role in moving money safely and quickly across borders. SWIFT, which stands for Society for Worldwide Interbank Financial Telecommunication, helps banks send and receive information for international payments. But as these banks use SWIFT every day, they also face challenges when it comes to VAT (Value Added Tax) rules. The UAE’s Federal Tax Authority (FTA) has now issued a guide called VATP036, which tells banks how to follow VAT rules with SWIFT transactions. Let’s break down what banks should know and do.
VAT on SWIFT Transactions: What Banks Must Understand
Every time a bank in the UAE sends or receives money through SWIFT, there can be VAT involved. VAT is a tax that applies to most goods and services at each step of the supply chain. When banks use SWIFT for payment processing, advisory services, or other activities, the transactions may create VAT responsibilities. But many SWIFT messages aren’t like regular invoices, so banks can get confused about what to do.
Main points:
- VAT applies to services banks provide through SWIFT, like payment processing.
- SWIFT messages are often not standard invoices, making VAT proof tricky.
- Banks must follow UAE’s updated tax rules to avoid mistakes and penalties.
What’s New: VATP036 Public Clarification
The FTA released VATP036 so banks could get clear answers. This guide helps banks know how to handle VAT on SWIFT charges. It covers the right way to recover input tax and what to use as proof for VAT claims. It also talks about using the reverse charge mechanism and keeping the right records.
Reverse Charge Mechanism
Banks must use the reverse charge mechanism when they get services from outside the UAE through SWIFT. That means the UAE bank pays the VAT to the FTA on these services, instead of the foreign supplier collecting it.
How Banks Can Recover Input Tax on SWIFT
Banks pay VAT on services from outside the UAE. They can recover this input tax if they keep the right documents. The good news is that a special kind of SWIFT message, called a “Qualifying SWIFT Message,” is now accepted as proof by the FTA.
A Qualifying SWIFT Message must show:
- Name and address of the non-resident (sending) bank.
- Name of the UAE bank (receiving the service).
- Date of the transaction.
- SWIFT message reference number.
- Transaction reference number.
- Description of the transaction.
- Amount charged and currency used.
If all these details are present, the SWIFT message acts as good evidence. This makes it easier for banks to claim input VAT and lowers their tax bills.
Tax Invoices and SWIFT Messages
Banks are normally required to issue tax invoices for VAT purposes. But with SWIFT, it’s different. Since banks receive many SWIFT messages every day, making a tax invoice for each would be a nightmare. The FTA understands this and says banks do not need to create tax invoices for every SWIFT transaction if they have proper records.
- Banks must keep Qualifying SWIFT messages as proof.
- Article 59(7)(b) of UAE VAT rules allows banks to skip making invoices if enough details are available.
- This makes things easier for banks and cuts paperwork.
Exempted Financial Services and Law Updates
Banks must also know which services are VAT-exempt under the latest rules. The new amendments in the VAT Executive Regulation of Federal Decree Law No.8 of 2017 (effective from November 15, 2024) give details about which financial services are exempt. Banks must always check if their services are taxable or exempt to stay out of trouble.
Action Steps for Financial Institutions
If you’re a financial institution dealing with SWIFT in the UAE, here are key steps:
- Use the reverse charge for SWIFT services from non-resident banks.
- Keep every Qualifying SWIFT Message as evidence.
- Don’t worry about issuing tax invoices if you have all needed records.
- Check the latest law to know if your services are taxable or exempt.
- Review your documentation process to make sure you’re following FTA rules.
Summary of what to do:
- Identify all SWIFT transactions.
- Check if each service is taxable or exempt.
- Store Qualifying SWIFT Messages safely.
- Use them as proof for VAT recovery.
- Don’t miss FTA filing deadlines.
How Mubarak Al Ketbi (MAK) Auditing Can Help
Mubarak Al Ketbi (MAK) Auditing is always ready to help banks and financial institutions stay compliant with the VAT rules for SWIFT transactions. Our experts will review your documents, train your team, and make sure you’re not missing out on any input tax you can recover. We know the law inside and out, so you can focus on your business while we handle the details.
- For more information visit our office:
Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates - Or contact/WhatsApp on this number:
+971 50 276 2132
