VAT on e-commerce Business in UAE

January 3, 2023Dated:  | |

As e-commerce business is increasing day by day. It’s very important to understand how VAT will be applicable to the e-commerce business. Determining how the VAT is applicable to e-commerce business is really not very easy. What is e-commerce –e-Commerce means selling goods and services on online platforms like Amazon, Noon, and many more and goods and services being services is delivered or sourced by electronic mode.

There are a few factors that need to be taken into consideration such as where the seller’s residence is, where the sales are happening, who is using the goods, and where it’s getting used.  The actual use of electronic services should be determined on the basis of where the electronic services are consumed by the recipient, regardless of the place of payment If sales are happening locally standard rate of 5% will be applicable to any goods which are purchased in UAE either by online platform or by locally in the market or any other platform in UAE is charged at 5 %

As per Article (18) of Decree-Law, a non-resident shall register for tax and makes supplies of goods or services, there is no threshold limit applicable to the non-residents. “This means if a consumer in the UAE buys a service/product from an online platform (social media, e-commerce, education, games, arts, fashion, music, or any other services), the non-resident shall register for the VAT within the stipulated time and comply with local tax legislation that means as soon as they do their first sale they have to on do their VAT registration and get the TRN number and generate the invoice by giving their invoices.

Sales and purchase of Goods and services and rules how the VAT will be applicable:

  • Sale and purchase of goods and services through e-commerce within  UAE will be applicable at 5%
  • If goods and services are taken in UAE and they have registered for VAT then, in the case who have registered for VAT will calculate VAT at the standard rate of 5% UAE in a reverse charge mechanism that means instead of supplier-buyer will be paying VAT
  • If the recipients of goods and services is the end user (Who have not registered for VAT )then the VAT will be payable by the agent or the logistics company to the authority at the standard rate of 5%
  • Need to register for VAT once reaches a threshold of 375000Aed and start charging VAT to the clients and raise tax invoice after adding TRN as provided by FTA.
  • In an e-commerce business, it is necessary to decide where the service is being enjoyed. If it is in the UAE, the place of supply will be in the UAE and the VAT will be charged at the standard rate of 5 %, and if it is outside UAE, then the place of supply is outside the UAE, and no VAT will be applicable.
  • How it is applicable in the case of Amazon – it totally depends on the agreement between agents and sellers in this case the obligation of VAT will be of the supplier making a sale directly to the customer, and the fee charged by the agent will be at 5% which is considered as VAT
  • And if the agent is directly making sales to the clients, then he himself will charge VAT and raise the tax invoice.
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