VAT ON BUSINESS OPERATING IN E-COMMERCE SECTOR
The Public Clarification provides a high-level clarification on the Value Added Tax and its amendments in respect of e-commerce in the United Arab Emirates, in the guide Federal Decree-Law No. 8 of 2017 on Value Added Tax, referred to as “Decree-Law” and Cabinet Decision No. 52 of 2017 on the Executive Regulation of the Federal Decree-Law No. 8. This guidance is not legally binding on the FTA but is intended to provide assistance in understanding and applying the VAT legislation. This guide is issued in accordance with Article 73 of the Executive Regulation and provides general guidance concerning the application of the Decree-Law and Executive Regulation in respect of e-commerce in the United Arab Emirates.
Supplies through E-Commerce
Supply of goods:
Purchasing goods through an electronic platform, such as a website or a marketplace.
Supply of services:
Services which are automatically delivered over the internet, an electronic network, or an electronic marketplace with no or minimal human intervention.
Supply of Goods Through E-Commerce:
Place of supply of goods
The basic place of supply rule for goods is that, if the goods are located in the UAE when supplied, then they are treated as supplied in the UAE. Similarly, if the goods are located outside the UAE when they are supplied, the place of supply is outside the UAE. Where the supply involves the export of goods from the UAE to a place outside the GCC Implementing States (which is currently, any other state outside the UAE), the place of supply is in the UAE.
Clarification 1: Factors Considered to Determine Registration Requirements for Non Resident Supplier In Case of Supply of Goods:
Supply made to registered recipient
The “reverse charge mechanism” is a simplification measure which allows nonresident suppliers to avoid the need to register for VAT in the UAE when they make supplies of goods in the UAE to registered persons. Where the reverse charge mechanism applies, the non-resident supplier will not charge VAT to the recipient. Instead, the VAT-registered recipient must self-account for the VAT in respect of the goods received. where the non-resident supplier is already registered for VAT in the UAE, it should account for VAT directly.
Supply made to unregistered recipient
If the person is not resident in the UAE, the person is required to register for VAT if it makes any taxable supplies in the UAE, unless there is another person in the UAE who is responsible for accounting for VAT on such activities. As such, for non-resident suppliers, the registration threshold is, in effect, nil.
Summary of the VAT Implications on Supply of Goods is as under –
In case Supplier is not a UAE resident
|Residency status of recipient||Registration Status of Recipient||Goods delivered From||Goods delivered to||VAT on Supply||VAT on supply accounted by||VAT on import|
|UAE||Registered||UAE||Outside UAE||0% if export conditions are met; otherwise 5%||Recipient||No|
|Any||Not registered||UAE||Outside UAE||0% if export conditions are met; otherwise 5%||Supplier||No|
|Outside UAE||Any||UAE||Outside UAE||0% if export conditions are met; otherwise 5%||Supplier||No|
|Any||Any||Outside UAE||Outside UAE||No||N/A||No|
Supply of Services Through E-commerce
For a supply of services to be considered as electronic services, it should satisfy both the condition mentions below :
1. The services should be covered under the definition of ‘electronic services’ as per the VAT legislation AND
2. The services should be automatically delivered over the internet, an electronic network, on an electronic marketplace.
Place of supply for electronic services
As per the special place of supplyrules for electronic services, PoS is:
- In the UAE, to the extent of the use and enjoyment of the supply in the UAE , UAE VAT will be applicable at the applicable rate i.e. 5% or 0% if expressly provide in Article 45 of the UAE VAT Law .
- Outside the UAE, to the extent of the use of enjoyment of the supply outside the UAE, UAE VAT shall not be applicable
Clarification 2: Factors Considered to Determine Registration Requirements for Non Resident Supplier in Case Of Supply of services:
In respect of cross-border supplies of electronic services into the UAE (i.e. import of services into the UAE from abroad), the reverse charge mechanism applies where the supplier does not have a place of residence in the UAE and the recipient is either registered or required to register for VAT in the UAE.
Where the reverse charge mechanism applies to a supply, the recipient, rather than the non-resident supplier, must account for the VAT to the FTA at the applicable VAT rate. The VAT should be charged on top of the agreed price for the electronic services.
Otherwise the responsibility for accounting for VAT on any taxable supply of electronic services in the UAE typically lies with the taxable supplier of those electronic services & it will be liable to register for VAT and to account for UAE VAT on its supplies to non-taxable persons.
Summary of the VAT Implications on Electronic Services is as under-
|Residency status of supplier||Place of use and enjoyment||Registration of status of supplier||VAT on supply||VAT on accounting|
|UAE||UAE||Any||5% or 0% if specifically zero – rated||Supplier|
|Outside UAE||UAE||Not registered||5% or 0% if specifically zero- rated||Supplier|
|Outside UAE||UAE||Registered||5% or 0% specifically zero- rated||Recipient|
|Outside UAE||Outside UAE||Any||No||N/A|
Business Model in E-commerce
As a principal:-
Where an electronic marketplace makes any supplies of goods or services in its capacity as a principal supplier (for example, it buys and then sells goods), then the electronic marketplace is treated as the supplier of those goods or services for VAT purposes. As a consequence, the electronic marketplace would be required to comply with the VAT rules and obligations which are typically applicable to suppliers of those goods or services.
As a intermediary:
Where an electronic marketplace is acting as an intermediary which enables a sale of goods and services. For example, an electronic marketplace may be used to advertise products, make bookings, process payments, and arrange deliveries of goods and services.
VAT Treatment of Supplies Made Through Agents
A disclosed agent is an agent which acts on behalf and in the name of a principal. In disclosed agency situations, the recipient of the supply knows that it is dealing with an agent of a principal, even if the recipient may not have any direct communication with the principal & the supply is treated as made directly by the supplier to the recipient, as a result, the VAT obligations for the supply will remain with the principal supplier, and the principal supplier should account for this VAT in its tax return if required under the normal VAT rules.
An undisclosed agent is an agent acting in its own name, where the customer has no knowledge that the agent is acting on behalf of a principal. then there are two supplies for VAT purposes – from the supplier to the intermediary, and from the intermediary to the recipient. In effect, the undisclosed agent is treated as both the buyer and the seller of the goods or services.
Both the principal supplier and the undisclosed agent must separately charge VAT applicable on the supply of the underlying goods or services, and must account for this VAT to the FTA in their own VAT returns. Where it is eligible under the general input tax recovery rules, the undisclosed agent may also recover the VAT which was charged to it by the principal supplier.