In today’s fast-paced world of technology and financial transactions, the Society for Worldwide Interbank Financial Telecommunication (SWIFT) plays a crucial role by ensuring systematic and secure communication and transactions between financial institutions across borders. However, with seamless communication and transactions comes the necessity for meticulous tax compliance, which financial institutions cannot afford to overlook. The Federal Tax Authority (FTA) in the UAE has recently issued Public Clarification VATP036 to provide insights on the VAT implications of SWIFT transactions.
In this blog, we will delve into the VAT compliance guidelines provided by the FTA for financial institutions engaged in SWIFT transactions, highlighting essential points of clarification and offering actionable insights.
Understanding VAT Implications of SWIFT Transactions
VAT (Value Added Tax) is levied on the value added to both goods and services at various stages of production and distribution. In the realm of SWIFT transactions, which are crucial for international finance, VAT applies to numerous services offered by financial institutions, including payment processing, transaction facilitation, and advisory services. However, a significant challenge arises in the recovery of this VAT. SWIFT messages, which document these transactions, do not meet the standard requirements to qualify as tax invoices under UAE VAT obligations.
Guidance for Financial Institutions Engaged in SWIFT Transactions

To aid financial institutions in recovering VAT, the FTA provides guidance on utilizing SWIFT messages for documenting international bank charges and input tax recovery. According to UAE VAT regulations, financial institutions must self-account for VAT using the Reverse Charge Mechanism and ensure timely VAT payments to the FTA.
Recovery of Input Tax
Financial institutions can recover input tax on expenses related to taxable supplies, even if these expenses are incurred via SWIFT communications with non-resident banks. By retaining the Qualifying SWIFT Message, financial institutions can reclaim VAT on interbank expenses. This recovery process adheres to standard VAT regulations, ensuring fair tax treatment and reducing the overall tax burden for financial institutions.
Issuing Tax Invoices for SWIFT Transactions
Financial institutions registered for VAT in the UAE must issue a valid tax invoice to themselves as recipients of supply for all SWIFT transactions that incur interbank charges. According to Article 59(7)(b) of the Executive Regulation, if sufficient records are available to establish the particulars of a supply, issuing tax invoices is not required. This exemption for transactions with adequate records streamlines the documentation process for financial institutions.
Acceptance of SWIFT Messages as Evidence
The FTA recognizes that issuing tax invoices for each SWIFT transaction can be highly impractical due to the high volume of daily SWIFT messages, significantly increasing the administrative burden on financial institutions. Therefore, the FTA accepts SWIFT messages as valid documentary evidence for interbank services, provided they meet specific criteria to qualify as a “Qualifying SWIFT message.”
According to the public clarification, a “Qualifying SWIFT message” must include the following information:
– 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 SWIFT message meets these requirements, it is accepted as sufficient documentary evidence of the supply of interbank services from the UAE financial institution to the non-resident bank. This practical approach ensures that the regulatory framework remains adaptable, addressing the specific challenges faced by UAE financial institutions in documenting their transactions.
Public Clarification VATP036 represents a crucial initiative by the FTA, offering a clear roadmap for financial institutions navigating the complexities of VAT compliance with SWIFT transactions. As the global financial landscape evolves, adhering to the guidelines for “Qualifying SWIFT messages” can help financial institutions mitigate compliance risks, streamline processes, reduce administrative burdens, and safeguard their reputation and financial integrity while benefiting from global connectivity through SWIFT communication.
Financial institutions should, therefore, review their documentation practices to ensure alignment with the outlined criteria for VAT compliance, contributing to a more transparent and robust financial ecosystem.
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