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According to the Federal Decree Law (“VAT Law”), if a sale is made in an overseas currency, it must be translated to UAE Dirhams using the UAE Central Bank’s approved exchange rates.

On May 17, 2018, the UAE Central Bank began posting exchange rates, and from that day onwards, all UAE companies are required to use only the exchange rates certified by the UAE Central Bank. Invoices issued from January 1, 2018 to May 16, 2018 in a foreign currency must be converted using a credible source. Here are some examples of reliable sources that may have been used before the UAE Central bank began publishing exchange rates:

• Thomson Reuters
• Oanda
• UAE Bank

The UAE Central Bank began publishing exchange rates on May 17, 2018, and also the approved exchange rates for periods before that date. Companies in the UAE are not required to adjust old invoices using historical exchange rates authorized by the UAE Central Bank, as long as the rates were obtained from a credible source and applied consistently. For invoices issued on or after May 17, 2018, all firms should stop using the trusted source and instead rely only on the UAE Central Bank for exchange rates.

Use of exchange rates for UAE

As mentioned previously, companies must always use the Central Bank’s accepted exchange rates. The actual rate announced by the Central Bank must be used by businesses. Companies are not permitted to round off the decimals, for instance it is not permitted to use 4.11 as the exchange rate if the approved exchange rate for Euros is 4.10856.

Time of exchange rates

The approved exchange rates for each day are normally published by the UAE Central Bank around 6 p.m. If a company issues a foreign currency invoice and the latest approved exchange rate has not yet been published for the day, it can use the previous (i.e. the last) exchange rate published on the Central Bank website.

Use of exchange rates for import of services

When businesses import services from other nations, they will almost certainly receive bills in an overseas currency. To calculate VAT correctly for the Reverse Charge Mechanism, you need to convert the invoices to UAE Dirhams. Companies can accept the invoice date as the supply date and use the exchange rate that corresponds to the invoice date.

Use of exchange rates for import of goods

VAT will be calculated automatically when items are imported from another country using the import declarations document filed by the relevant customs department. The VAT Report’s box number 6 will be filled with the same value. Before calculating the VAT, the invoice amount needs to be converted from the foreign currency to UAE Dirhams which will be done by the customs department. Customs may use an exchange rate that differs from the ones allowed by the UAE Central Bank on occasion. At such instances, the company need not change the amount specified in box number 6 by the customs department.

The Federal Tax Authority (FTA) published Article 69 in April 2018, of Federal Decree-Law no.8 of 2017 for the clarification of Currency Exchange Rate for VAT w.e.f. from 17^th May 2018.

When a sale is made in a foreign currency other than AED, all taxable persons must convert invoices issued in foreign currencies into the local currency (UAE Dirham) and calculate the VAT liability using the Central Bank’s published exchange rates.

• Exchange rates from reputable sources could be used for tax bills issued before May 17, 2018.
• The exact conversion rate, i.e. the same number of decimal places as stated, must be used.
• These rates are updated Monday through Friday and are based on the rates at 6 p.m. UAE time every day.
• In the event where certain markets are closed due to a local holiday, the applicable VAT rate will be the prevailing rate at 6 p.m. the preceding day.
• For the purpose of Import declaration, the customs department will convert the foreign currency value to AED and automatically fill it in Box 6 of the VAT return.
• When the customs department’s exchange rate differs from the Central Bank’s stated rate, you can use the former to declare the VAT on imports.

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