VAT User Guide for E-Commerce

VAT REGISTRATION UAE

The Federal Tax Authority has released a guide on the value-added tax Guide for e-commerce (sometimes loosely referred to as the “digital economy”)

E-commerce generally refers to supplies of goods and services over the Internet or  a  similar  electronic  network,  with goods  and  services  being sourced  or supplied  by electronic  means,  such  as  through  a computer, phone  website  or electronic applications.

The Guide discusses the following types of transactions:

• Goods purchased through an electronic platform; and
• Services supplied by electronic means.

E-commerce: Supplies of Goods:

A supply of goods in the e-commerce context involves purchasing goods through an electronic platform, such as a website or a marketplace.

Registration:

A person resident in the UAE is required to register for VAT if he fulfills the conditions of Mandatory Registration.

In contrast, 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 is Nil.

Voluntary  registration  is  an  option available  to  businesses  which  do  not  have  a turnover  in  excess  of  the  mandatory  registration  threshold  but  would  still  like  to  be registered for VAT

It should be noted that a non-resident person is not allowed to voluntarily register on the basis of its “taxable expenses”.

Place of Supply:

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

E-commerce: Supplies of Services:

For a supply to fall under the special VAT rules for electronic services, the supply must, therefore, meet two conditions:

• the service in question must be specified service  and
• the  service  must  be  automatically  delivered  over  the  internet,  an  electronic network, or an electronic marketplace.

Place of Supply:

Supplies of electronic services (as well as of telecommunications services) are subject to a special place of supply rule.  Thus, the place of supply of electronic services is:

• in the UAE, to the extent of the use and enjoyment of the supply in the UAE and
• outside the UAE, to the extent of the use and enjoyment of the supply outside the UAE

Reverse charge mechanism

Under the default VAT rule for accounting for VAT, a supplier of goods or services is liable to account for VAT on any taxable supply, irrespective of whether the supplier is a UAE resident or not.

The  “reverse  charge  mechanism”  is  a  simplification  measure  which  allows non-resident suppliers to avoid the need to register for VAT in the UAE when they make supplies of goods or services 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 or services received.

At Flyingcolour, we can guide and help your e-commerce business with all kind of VAT and accounting needs. If you have any query then feel free to call +971 4 4542366 today for a quality consultation or please send inquiry to info[at]flyingcolour[dot]com.

Please Note: This article was published on 10th January, 2021. The information provided in the article is based on the policies and rules applicable at the time of writing it. Talk to one of our consultants for any recent update or change.