In this context, the FTA clarified that the SWIFT messages that are used in practice to evidence such international bank charges and their underlying transactions would be sufficient for the purposes of satisfying the supporting tax documentation requirements and the input tax recovery conditions where the SWIFT messages meet certain requirements.

In detail

Current uncertainty explained

• When financial institutions receive interbank services from non-resident banks, they are regarded as making supplies to themselves in respect of these interbank services and are required (i) to issue tax invoices to themselves in respect of these supplies and (ii) to account for the due tax using the reverse charge mechanism.
• Financial institutions in particular incur international bank charges from banking institutions outside the UAE as a result of using the SWIFT communication system with these non-resident banks. The provision of the right to use the SWIFT communication service constitutes a service for VAT purposes.
• In practice, such international bank charges and their underlying transactions are evidenced by SWIFT messages that do not meet the formal requirements to constitute commercial invoices or valid tax invoices for UAE VAT purposes.

FTA Clarification 

The FTA recognizes that the volume of SWIFT messages that the UAE financial institutions receive on a daily basis is so significant that it would be impractical to require financial institutions to issue a tax invoice to themselves for each SWIFT transaction.

Acknowledging the administrative burden of issuing tax invoices for a financial institution for a high number of SWIFT-related concerned services, the FTA issued this Clarification specifying that SWIFT messages that meet certain requirements will constitute tax invoices for UAE VAT purposes, enabling the input tax recovery of VAT paid.

The SWIFT message will be accepted as a sufficient record to establish the particulars of the supply in accordance with Article 59(3) of the UAE VAT Executive Regulations, provided the following information is reflected on the SWIFT message (Qualifying SWIFT message): 

• Name and address of the non-resident bank (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.

If the above requirements are met, a UAE financial institution would not be required to issue a formal tax invoice to itself to document SWIFT-related services if it retains the relevant Qualifying SWIFT message as evidence of the transaction.

Financial institutions are also eligible to recover VAT incurred to the extent such costs are incurred to make taxable supplies and the Qualifying SWIFT message would also be accepted as sufficient supporting tax documentary evidence for the recovery of input tax.

To speak with us in relation to any tax matters or issues more generally, please contact one of the team members above.