E-Commerce plays a vital role in the business of both legal experts practising and companies the world around. The Value Added Tax (VAT) in the UAE makes the complexities that all stakeholders should be careful of.
E-Commerce business includes transactions of sales and purchases which are conducted electronically. That means everything you are buying or selling online are the business of eCommerce. So, if you are in the UAE and you are supplying goods or services through the internet or any other electronic media, then you will have to pay the VAT. If you are a taxable person and you are selling goods via the internet and the goods are delivered locally then you will have to pay a VAT of 5%.
This guide is for both resident UAE businesses and non-resident businesses involved in the E-Commerce and digital services sector as it outlines the VAT compliance criteria for this industry specifically.
VAT on Online Sales
You must know that 5% VAT is applicable on online sales in the UAE. A supply of goods in the eCommerce context involves purchasing goods through an electronic platform, such as a website or a marketplace. Once the commodities are bought, they are then delivered to the recipient.
Based on the location of the supplier, the receiver, and the goods, the supply may take any of the following primary forms -
- A supply by a resident supplier to a receiver in the UAE, with goods being delivered from either inside or outside the UAE
- A supply by a resident supplier to a receiver outside the UAE, with goods being delivered from either inside or outside the UAE
- A supply by a non-resident supplier to a receiver in the UAE, with goods being delivered from either inside or outside the UAE, and
- A supply by a non-resident supplier to a receiver outside the UAE, with goods being delivered from either inside or outside the UAE
In each of the above cases, the supplier has to consider the impact of VAT on the sale of the goods, also, where the goods are physically imported into the UAE from outside the UAE.
VAT on E-Commerce Business
The Federal Tax Authority (FTA) has validated that all purchases made through online shopping portals are subject to the same 5% AVT as any other purchase made through conventional outlets if the products purchased online are accepted within the UAE.
As per Article 18 of Decree-Law, a non-resident must register for tax and makes supplies of goods or services, there is no threshold limit applicable to the non-residents. This means if a customer in the UAE buys a product/service from an online platform (social media, games, education, eCommerce, music, fashion, arts, or any other services), the non-resident shall register for the VAT within the stipulated time and comply with local tax legislation.
VAT on E-Commerce Sales
Physical goods and electronic services such as e-games, software, e-subscriptions, mobile phone applications and e-content are subject to specific rules that regulate how VAT applies to them.
- Sales and Purchase of goods or services through eCommerce within the UAE is considered as domestic sales and are subject to the standard 5% VAT rate
- Purchase of goods or services from outside the UAE is subject to the standard 5% VAT rate
If the recipient of goods or services is in the UAE and registered for VAT (as a taxable person), then in this case recipient of goods or services is expected to calculate the standard 5% VAT using the reverse mechanism, whereby the taxable recipient calculates the due VAT instead of the non-resident supplier.
If the recipient is the end consumer, that means, not registered with the tax authority for VAT; then standard 5% VAT is charged and paid to the authority by the agent or logistics company. Agent who exports/imports will be responsible for compliance of the UAE VAT for all substances on behalf of the non-registered individual.
VAT on Electronic Services
Electronic services refer to automatically delivered services over the internet, an electronic marketplace, or an electronic network. The place of supply of electronic services decides whether or not the services are subject to the VAT in the UAE. Where the point of supply is outside the UAE, no UAE VAT would apply. In contradiction, where the point of supply is in the UAE, the supply will fall within the UAE VAT net.
The default VAT rate on a taxable supply of services in the UAE is 5%. The supply may, nonetheless, be zero-rated if it falls under any of the zero-rating scenarios in Article 45 of the Decree-Law. For example - a supply of electronic services of distance learning which is automatically delivered over the internet may be zero-rated if it is covered by Article 45 (13) of the Decree-Law, read with Article 40 of the Executive Regulation.
VAT Services in the UAE
With the introduction of VAT in the UAE, there are considerations that businesses would have to take care of concerning tax consulting. We at Commitbiz have our team of experts to help you with company formation, registration, and counselling. For any queries on VAT tax consultation for companies in the UAE, feel free to reach out to us.