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NEW GUIDELINES ISSUED

Khalid Ali Al Bustani

E-commerce services subject to VAT when used in UAE

ABU DHABI, August 12, 2020

The UAE’s Federal Tax Authority (FTA) has clarified in a guide issued to the e-commerce sector that Value Added Tax (VAT) is applied on e-commerce services upon their actual use or enjoyment in the UAE.

Although many of the general rules of VAT apply to e-commerce, there are a number of special rules that apply specifically to e-commerce transactions, an FTA statement said.

The guide issued by the FTA clarifies how the VAT Law applies to the supply of goods and services provided through electronic means, such as the internet or similar electronic networks. The guide includes guidance on the application of VAT on goods and services supplied within the scope of e-commerce, and the imposition and accounting for VAT on those supplies.

The guide outlines the tax treatment of the supply of electronic services, such as services that are provided directly over the internet, an electronic network, or an electronic market, including the supply of domain names, web-hosting and remote maintenance of programs and equipment, software (including the updating thereof), images, text and information provided electronically such as pictures, screen savers, electronic books, documents and other digitized files, music, movies and games on demand, and online magazines.

Other services identified under the banner of ‘electronic services supplies’ include the supply of advertising space on a website and the rights associated with that advertisement, and Political, cultural, artistic, sports, scientific, educational or entertainment broadcasts, including broadcasts of events, live streaming via the internet, the supply of distance learning services, and services of any equivalent type that have a similar purpose and mission.

Khalid Ali Al Bustani, FTA Director-General said: “Tax legislation in the UAE is characterized by transparency and accuracy, and takes into account the strengthening of the nation’s leadership position as a central economic and commercial centre, not only regionally but also at a global level. In light of the increasing importance of the e-commerce sector, clear mechanisms for procedures have been identified. Value Added Tax, as it relates to the supply of goods and services through electronic means, contributes to supporting the activities of this vital sector, which depends on a locally developed digital and technological infrastructure.”

The FTA indicated that all goods and services purchased through online shopping sites are subject to 5% VAT if the place of supply is in the UAE, like any other purchases made by traditional means, as per the special provisions governing the tax treatment of supplies.

The guide, which has been published on the FTA’s website, makes the point that in traditional trade transactions, goods and services are usually supplied from a physical location such as a store or representative office, with the supplier or recipient present at the same site.

For e-commerce, however, it generally refers to the supply of goods and services that take place on the internet or similar electronic networks, where goods and services are obtained or supplied through electronic means such as computers or mobile phones via websites or electronic applications (apps).

The guide also provides guidance on the VAT treatment of goods purchased through electronic platforms and services supplied through electronic means, indicating that taxable persons should charge VAT to customers when supplying taxable goods or services (generally, at the standards rate of 5%, or where the VAT Law permits, at a rate of 0%). If the supplies are exempt from tax, these supplies are not treated as a taxable supplies and therefore no VAT needs to be charged on these supplies.

The FTA clarifies in its guide that different conditions and requirements may apply to mandatory or voluntary registration, depending on whether a person has a place of residence in the UAE. A person has a place of residence within in the UAE for the purposes of VAT registration if he has a place of establishment in the UAE.

The guide also deals with the legal requirements for compulsory and voluntary registration, noting that a non-resident may not register voluntarily for VAT on the basis of his ‘taxable expenses. Furthermore, the guide sets out the criteria for determining the place of supply (whether it is inside or outside the UAE), the VAT treatment for supplies of goods through online platforms where the suppliers are UAE residents who are subject to tax, and for suppliers who are not resident in the UAE.

The guide also provides more information on the procedures for recovering input tax on e-commerce transactions and the application of the ‘reverse-charge mechanism’ which could apply on e-commerce transactions.

The reverse-charge mechanism aims to reduce the burden of compliance and the administrative burden related to collecting VAT from non-resident suppliers. It levels the playing field between the supply of services or goods from a supplier outside the UAE and by a local supplier. This ensures that local UAE suppliers in the country are not prejudices as a result of consumers purchasing online from foreign suppliers. – TradeArabia News Service




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