The UAE Federal Tax Authority (FTA) has issued a new public clarification — VATP041 — on April 11, 2025, addressing the VAT implications for SWIFT messages. This replaces the earlier guidance under VATP036 and carries significant implications for financial institutions operating in the UAE.
SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a critical infrastructure for interbank communication, used extensively by banks and exchange houses to transmit secure payment instructions. Charges for such services, especially when incurred from foreign entities, now fall under the FTA’s refined interpretation of “Concerned Services” for VAT purposes.
Key Highlights from VATP041
| Aspect | Clarification under VATP041 |
| Scope of Application | Applies specifically to international banking charges for SWIFT messaging services. |
| VAT Treatment | Subject to VAT under the reverse charge mechanism. |
| Documentary Requirement | Qualifying SWIFT Message can replace a self-issued tax invoice. |
| Input VAT Recovery | Allowed if charges relate to taxable supplies and are properly documented. |
| Timing of Input VAT Claim | Can be claimed in the tax period in which the message is received, if payment is made or intended within six months. |
What Is the Reverse Charge Mechanism?
Under the reverse charge mechanism (RCM), the responsibility to account for VAT shifts from the supplier (in this case, the foreign bank) to the recipient (the UAE financial institution). This means UAE-based institutions must calculate and pay VAT as if they were both the supplier and receiver of the service.
What Qualifies as Sufficient Evidence?
The FTA acknowledges the operational complexity in issuing self-tax invoices for the high volume of daily SWIFT messages. As a result, it now accepts a Qualifying SWIFT Message as an alternative to a traditional tax invoice, provided it contains the following details:
- Name and address of the foreign supplier (bank)
- Name and address of the UAE recipient
- Transaction date
- Unique reference number
- Description of the service (e.g SWIFT message fee)
- Amount charged (Consideration)
- Currency used for transaction
Implications for Financial Institutions in UAE
This clarification from the UAE FTA provides valuable administrative relief but also places responsibility on these financial entities to maintain robust recordkeeping and VAT compliance practices.
Key Implications
| Implication | Details |
| Ease of Compliance | Reduces the burden of issuing self-tax invoices for each SWIFT transaction. |
| Documentation | Requires detailed, traceable, and compliant SWIFT records to qualify for VAT recovery. |
| Audit Preparedness | Institutions must ensure that systems can generate and retain Qualifying SWIFT Messages for audit purposes. |
| VAT Recovery Conditions | Input VAT is only recoverable if the cost relates to taxable business activities. |
Best Practices Going Forward
Financial institutions should take the following steps to align with VATP041:
- Update VAT Policies: Ensure VAT procedures reflect the latest FTA guidance.
- Enhance Documentation: Configure internal systems to store and retrieve Qualifying SWIFT Messages.
- Review Input VAT Recovery: Conduct periodic reviews to validate recoverability in line with taxable outputs.
- Conduct Staff Training: Ensure compliance and finance teams understand the new documentary requirements.
Stay Ahead with Expert VAT Support
ebs chartered accountants has a very good track record of guiding financial institutions through complex VAT regulations in the UAE. Our team of tax specialists can help you:
- Evaluate your exposure to reverse charge VAT obligations
- Set up automated compliance workflows
- Conduct VAT health checks and staff training sessions
- Support during FTA audits and documentation reviews
Reach out to us today to ensure your VAT compliance is aligned with VATP041 — and avoid costly penalties due to misinterpretation or administrative oversights.
Contact us now to schedule a consultation or request a tailored compliance review.
FAQs
What is VATP041?
VATP041 is an update from the UAE FTA, clarifying VAT treatment on SWIFT-related charges for financial institutions.
How does VATP041 affect SWIFT charges?
SWIFT charges incurred by UAE financial institutions are subject to VAT under the reverse charge mechanism.
Can SWIFT messages be used as tax invoices?
Yes, SWIFT messages can be used as valid documentation, provided they include the required VAT details.
What does VATP041 mean for VAT compliance?
VATP041 streamlines VAT compliance for financial institutions, making it easier to recover input VAT on SWIFT-related charges.