Use of Exchange Rates
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Use of Exchange Rates

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The Federal Decree Law (“VAT Law”) states if a supply was made in a foreign currency, it must be converted to UAE Dirhams, using the exchange rates approved by the UAE Central Bank.

The UAE Central Bank began publishing exchange rates on May 17, 2018 and as of that date, all companies in the UAE are obliged to use the exchange rates approved by the UAE Central Bank only. For the invoices issued from January 1, 2018 until May 16, 2018, invoices issued in a foreign currency should have been converted using a reliable source. The source that the businesses were using before May 17, 2018, should have been used in all their currency conversions, and not using different sources for different conversions. The following are few examples of reliable sources that could have been used before the UAE Central Bank started publishing exchange rates,

  • Thomson Reuters;
  • Oanda;
  • UAE Bank

When the UAE Central Bank has started publishing exchange rates on May 17, 2018, it has also published approved exchange rates for periods prior to that date. Companies in the UAE are not obliged to use historical exchange rates approved by the UAE Central Bank to adjust historical invoices, provided that exchange rates have been taken from a reliable source and used consistently. While for invoices issued on May 17, 2018 or after, all businesses should stop using the reliable source and only use the UAE Central Bank as the only source for exchange rates.

Use of exchange rates

As mentioned earlier, businesses must always only use the approved exchange rates by the Central Bank. Businesses must use the exact rate published by the Central Bank. For example, if the approved exchange rate for the Euros is 4.10856, businesses are not permitted to round off the decimals and use 4.11 as the exchange rate.

Time of exchange rates publication

The Central Bank publishes the approved exchange rates for each day at 6PM usually. If a company is issuing an invoice in a foreign currency and the updated approved exchange rate is not yet published for the day, it may use the last exchange rate published on the Central Bank website.

Use of exchange rates for import of services

When companies are importing services from outside countries, they will probably receive invoices in a foreign currency. Those invoices must be converted to UAE Dirhams to make correct VAT calculations for the Reverse Charge Mechanism. Companies will be allowed to treat the invoice date as the date of supply, and use the exchange rate corresponding to the date of the invoice.

Use of exchange rates for import of goods

Where goods are imported from outside the country, VAT shall be calculated automatically using the import declarations document submitted by the relevant customs department. The same value will be populated in box number 6 in the VAT Report. Prior to calculating the VAT, invoice amount will be converted from the foreign currency to UAE Dirhams, and this will be done by the customs department. The customs department might sometimes use an exchange rate that differs from the ones approved by the UAE Central Bank. In that case, there is no need for the company to adjust the amounts mentioned by the customs department in box number 6.

Ziad Khawaja
Fame Legacy DMCC
Tax Assistant Manager – Tax Agent, TAAN: 20040382
+971503948973
Ziad@vatmiddleeast.com

Author: admin

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