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2020/08/25

VAT for E-commerce in UAE

By: Asma Sajid

Overview

E-commerce VAT guide by the Federal Tax Authority notifies the V.A.T. treatment of supplies of goods and services through electronic means, such as over the internet or a similar electronic network. 

All goods and services that are purchased online are subject to a 5 percent Value Added Tax if their delivery address is in the U.A.E., and if the products are utilized locally.

The F.T.A. provided updated guidance, making it clear that all “electronic service supplies”, including e-books, music, magazines, games, movies, and other services that are conveyed digitally. These are subject to the tax only in the situation like; if they are delivered to local accounts or consumed locally.

F.T.A. director general Khalid Al Bustani mentioned that “In light of the increasing importance of the e-commerce sector, clear mechanisms for procedures have been identified.”

Other services subject to V.A.T. include the purchase of domain names, website advertising, distance learning courses, or live-streamed broadcasts of a range of content including sports, entertainment, cultural, political, artistic, and scientific events. Value Added Tax applies to services delivered through websites, mobile apps, and other digital platforms.

The F.T.A. said that its new guide, which is available on its website, clarifies whether companies or individuals delivering services need to register for V.A.T. or not and whether such registration is compulsory or voluntary. It also deals with issues surrounding residency and the allowance of taxable expenses.

In-Depth

E-commerce refers to business transactions (income and purchases), which can be performed electronically, as on the internet.

If someone is imparting items or offerings in U.A.E. via the internet or another electronic media, he’s chargeable for the gathering of V.A.T. as in traditional commerce. This also applies, however, that the transactions are effected through a third-party e-commerce provider issuer.

The medium via which the transaction takes place does no longer regulates the taxability of the sale.

All physical items supplied over the internet attract V.A.T. if the provider is a taxable individual, and the supply is made in U.A.E. 

VAT- Registration guidelines

V.A.T. is a consumption tax imposed at each stage of the delivery of goods & services. V.A.T. is payable at each taxable supply and deemed supply made by the chargeable individual and the import of concerned goods. However, certain supplies can be either zero-rated or exempt from V.A.T., as noted within the Federal regulation no. 7 of the 2017 and the executive rules thereby. V.A.T. is charged at 5% standard price or zero-rated.

Simplest, a VAT-registered character can charge and acquire V.A.T. on all substances of products and services made in U.A.E. apart from exempt or zero-rated materials. The VAT-registered people need to account and pay the V.A.T. amassed to the Federal Tax Authority within 28 days from the end of his tax period.

As referred to above, a person is only required to account for V.A.T. within the U.A.E., if it’s far a taxable person – that is, if the person is both registered for V.A.T. or is obligated to register for V.A.T. It’s far, consequently, vital to determine when a person is required to be registered for V.A.T. 

V.A.T. registration may be either mandatory or voluntary. It should be stated that distinct registration requirements and situations may also be observed to both mandatory and voluntary registrations relying on whether or not someone has a place of residence in the U.A.E. 

Therefore, someone needs to realize whether or not it is resident in the U.A.E. when thinking about which registration guidelines follow to it. 

A person could have a place of residence inside the U.A.E. for V.A.T. registration if the character has an area of established order or fixed establishment in the U.A.E. The phrases are described in the Decree-regulation:

  • “place of the established order” in the vicinity where an enterprise is legally established in a country according to the choice of its established order, wherein great control choices are taken, or central management functions are carried out.  
  • “constant establishment” is any fixed place of business other than the established order’s location. Here, the person conducts his commercial enterprise regularly or permanently and wherein enough human, and era assets exist to enable the individual to deliver or accumulate items or services, consisting of the person’s branches. 

In addition, details regarding necessities for mandatory and voluntary registrations are supplied under:

Mandatory registration 

A person resident in the U.A.E. is required to register for V.A.T. if any of the subsequent follow:

  • The entire price in their taxable materials made within the U.A.E. and imports into the U.A.E. surpassed AED 375,000 over the preceding 12-month period; or   
  • The individual anticipates that the total value in their taxable elements made within the U.A.E. and imports into the U.A.E. will exceed AED 375,000 inside the subsequent 30 days.   

The principal categories of supplies and imports that need to be taken under consideration for the functions of the required registration threshold, and the voluntary registration threshold, are:

  • Materials of goods or services made inside the U.A.E. in the direction of enterprise. 
  • Any goods or services that the individual has imported into the U.A.E. that would have been subject to V.A.T. had they been furnished in the U.A.E. The person need to not include in this calculation the value of any supplies which might be both exempt from V.A.T. or are outside the scope of UAE VAT.  

In evaluation, if the person isn’t always resident in the U.A.E., the individual is required to sign in for V.A.T. if it makes any taxable substances inside the U.A.E., except there may be any other character in the U.A.E. who’s answerable for accounting for V.A.T. on such sports. As such, for non-resident suppliers, the registration threshold is, in impact, nil. 

Voluntary registration 

Voluntary registration is an alternative available to companies that do not have a turnover in extra of the mandatory registration threshold; however might nonetheless want to be registered for V.A.T. someone can voluntarily sign in for V.A.T. if: 

  • At the quit of any month, the full price of the person’s taxable substances and imports, or their fees which have been subject to V.A.T., in the preceding twelve months exceeded AED 187,500; or
  • The entire value of the person’s taxable supplies and imports, or their expenses that are difficult to V.A.T., is expected to exceed AED 187,500 within the next 30 days. 

 It must be stated that a non-resident person is not allowed to voluntarily sign up on the idea of its “taxable prices”.

Records to be maintained:

  • Records of all supplies and imports of goods and services.
  • All tax invoices and alternative files are related to receiving products & services.
  • All tax credit score notes and alternative files were accepted.
  • All tax invoices and alternative documents are issued.
  • All tax credit score notes and alternative files are issued.
  • Data of goods and services that have been disposed of or used for subjects not related to commercial enterprise, displaying taxes paid for the identical.
  • Records of products and services purchased and for which enter tax was not deducted.
  • Records of exported items and services.
  • Records of changes or corrections made to accounts or tax invoices.

E-commerce: Supplies of Goods 

The table below summarises the VAT treatment of various scenarios involving supplies of goods by a supplier who is resident in the UAE and a supplier who is not resident in the UAE. 

For the purposes of this table, it has been assumed that the supply takes place before or at the time the goods are dispatched, that is, in the location from which the goods are delivered.

Fig. Credits: FTA

Link to the FTA E-commerce guide.

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