UAE VAT Treatment for SWIFT Messages

Published: April 16, 2025

The Federal Tax Authority (FTA) of the United Arab Emirates has issued Public Clarification VATP041 concerning the VAT treatment of SWIFT messages and related banking charges for financial institutions. This clarification, which supersedes VATP036, addresses key documentation requirements and input tax recovery mechanisms for international bank charges evidenced by SWIFT messages. Our tax experts have analyzed the implications of this clarification to help UAE financial institutions understand their compliance obligations.

Background

The SWIFT System and Cross-Border Banking

The Society for Worldwide Interbank Financial Telecommunications (SWIFT) network serves as the global standard for secure financial messaging between banking institutions. UAE-based banks and exchange houses regularly utilize this network for international transactions, incurring charges from foreign banking partners in the process.

These international bank charges are typically documented through “SWIFT messages” rather than conventional invoices. This creates a unique challenge under the UAE’s VAT framework, as these messages do not typically fulfill standard tax invoice requirements.

The Regulatory Context

Under Federal Decree-Law No. 8 of 2017 on Value Added Tax and its Executive Regulation, imported services received by UAE businesses from overseas suppliers are subject to VAT through the reverse charge mechanism. Normally, this would require financial institutions to self-issue tax invoices for each SWIFT transaction—creating a significant administrative burden given the high volume of daily transactions.

Key Provisions of VATP041

1. Classification of SWIFT Services as “Concerned Services”

The FTA has explicitly confirmed that services received through the SWIFT communication system constitute “Concerned Services” for UAE VAT purposes. When a UAE financial institution receives such services from a bank outside the UAE, it is regarded as making a taxable supply to itself and must account for VAT under the reverse charge mechanism.

2. Documentation Requirements

In a significant development, the FTA acknowledges the impracticality of requiring financial institutions to issue tax invoices for the high volume of daily SWIFT transactions. The clarification establishes that a “Qualifying SWIFT Message” can serve as sufficient documentary evidence in lieu of a self-issued tax invoice.

Requirements for a “Qualifying SWIFT Message”

For a SWIFT message to qualify as acceptable documentation, it must contain:

• Name and address of the non-UAE bank (sender/supplier)
• Name of the UAE financial institution receiving the service
• Transaction date
• SWIFT message reference number
• Transaction reference number
• Transaction description
• Consideration amount and currency denomination

3. Input Tax Recovery Framework

The clarification provides that UAE financial institutions may recover input tax related to SWIFT services to the extent that such costs were incurred for the purpose of making taxable supplies. For input tax recovery purposes:

• A Qualifying SWIFT Message will be treated as sufficient documentary evidence under Article 55(1)(a)(3) of the VAT Decree-Law
• Input tax may be recovered in the tax return for either the tax period when the supporting documentation was obtained or the immediately following period
• The financial institution must have made payment or intend to make payment within six months of the agreed payment date

Practical Application

Consider the following scenario:

On April 3, 2025, a UAE bank conducts transactions using the SWIFT system with an overseas bank, incurring banking charges of USD 500. The bank receives a Qualifying SWIFT Message documenting these charges on the same day.

VAT Treatment:

1. The UAE bank must account for VAT on the USD 500 under the reverse charge mechanism
2. With VATP041 in effect, the bank is not required to issue a tax invoice to itself, provided it retains the Qualifying SWIFT Message
3. The bank may recover the input tax (to the extent the cost relates to taxable supplies) based on the Qualifying SWIFT Message as documentary evidence

Strategic Implications for Financial Institutions

Compliance Benefits

This clarification offers significant administrative relief to UAE financial institutions by:

1. Eliminating the need to self-issue thousands of tax invoices for routine SWIFT transactions
2. Providing clarity on acceptable documentation for VAT compliance
3. Establishing a clear framework for input tax recovery

Implementation Recommendations

Financial institutions should take the following steps to align with VATP041:

1. Review their SWIFT message templates to ensure all required information is captured
2. Establish robust document retention protocols for Qualifying SWIFT Messages
3. Update internal VAT accounting procedures to properly apply the reverse charge mechanism
4. Implement appropriate input tax recovery tracking systems
5. Train relevant finance and tax personnel on the new requirements

Conclusion

The FTA’s VATP041 clarification represents a practical approach to VAT compliance for international banking communications. By acknowledging the unique nature of SWIFT transactions and providing appropriate documentation alternatives, the FTA has reduced administrative complexity while maintaining the integrity of the VAT system.

Financial institutions should ensure their systems and processes are aligned with these clarified requirements to maintain VAT compliance while benefiting from the administrative simplifications offered.

---

Disclaimer: This article provides general information only and should not be considered as professional tax advice. For specific guidance on your VAT obligations, please contact our tax consulting team who can provide personalized advice for your situation.