VAT ON E-COMMERCE SECTOR

Supply of goods

Purchasing goods through an electronic platform, such as a website or a marketplace.

Supply of services

Services 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 the registered recipient

The “reverse charge mechanism” is a simplification measure that 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 an 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

Supply Of Services Through E-Commerce

Electronic services:

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 supply rules 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-

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 an intermediary:

Where an electronic marketplace is acting as an intermediary which enables the 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

Disclosed agent:

A disclosed agent is an agent who 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.        

Undisclosed agent:

When considering VAT on Ecommerce Sector, an undisclosed agent operates in its own name, with the customer unaware that the agent is acting on behalf of a principal. For VAT purposes, this creates two separate supplies: one between the supplier and the intermediary, and another between the intermediary and the recipient.

Both the principal supplier and the undisclosed agent are required to charge VAT on their respective supplies and report this VAT in their returns to the FTA. The undisclosed agent may also recover VAT charged by the principal supplier, provided it meets the general input tax recovery rules.