VAT and E-commerce in UAE
E-commerce has remained one of the positive outcomes of technological advancements all over the world. Customers’ expectations and choices appear to have shifted dramatically because of the comfort and convenience provided by many active virtual markets. As can be seen, the recent pandemic crisis has ushered in a slow shift toward e-commerce as our preferred platform over physical buying. The UAE government has always attempted to foster the growth of e-commerce in the country. E-commerce transactions in the UAE will be subject to VAT
What is VAT?
VAT is a consumption tax levied at each stage of the goods and services supply chain. VAT is due on all taxable and presumed supplies made by the taxable person, as well as on the import of the items in question. However, as stated in Federal Law No. 7 of 2017 and the accompanying executive rules, certain supplies are zero-rated or VAT-exempt. VAT is charged at a regular rate of 5% or is zero-rated.
Except for exempt or zero-rated sales, only a VAT-registered person can charge and collect VAT on all supplies of goods and services made in the UAE. VAT-registered individuals must account for and pay the VAT collected to the Federal Tax Authority within 28 days of the end of the fiscal year.
Providing Goods or Services
There must be a taxable supply of goods or services for VAT to apply to any e-commerce transaction. It’s interesting to note that we use a lot of e-commerce services unintentionally in our daily lives. Reading an online magazine, watching a movie live on the internet, or using distance learning programs are just a few examples of services that belong to the e-commerce umbrella.
For the sale of products, the place of supply is established by the location of the goods when the sale occurs, and for the supply of services, the same is determined by the site where the service is used and enjoyed.
Supplier and Recipient Status
The supplier’s residency status and the recipient’s registration status also influenced the VAT accounting treatments for every e-commerce transaction.
Arrangements with Agencies
Many e-commerce transactions, particularly those we often refer to as “online shopping,” take place through intermediary websites. The VAT accounting methods differ based on the agreements between the supplier, the intermediary, and the recipient of the supply.
Taxability of supplies
Over-the-internet purchases of physical products
The taxability of a sale of goods is unaffected by the channel through which the transaction takes place.
Standard-rated physical goods
If a provider is a VAT-registered person and the supply is made in the UAE, all physical products sold via the Internet are subject to VAT. The same principles apply to charge VAT on e-commerce transactions as they do in traditional commerce. As a result, if a VAT-registered individual sells items over the Internet and has them delivered locally, he is making a standard-rated supply for which VAT is charged at 5%.
Physical commodities- zero taxed.
Only if we ship commodities out of the UAE to a non-implementing state will the supply of goods made over the Internet be zero-rated. However, necessary export paperwork must be kept on hand. As a result, whether VAT is imposed at 5% or 0% on the supply of products is determined by the delivery destination (export to an implementing state is an exception to this).
If a taxable person sells books via the Internet, for example, he must charge 5% VAT on the price of the books if we deliver them to a local address. However, if he exports the books to a non-IS country, he will zero-rate the supply of the books as long as he keeps all the required papers.
The taxable person must keep: a)parcel posting receipt/courier consignment note and b)invoice to the foreign buyer for products sold over the Internet and shipped by postal or courier service.
Services / Digitized Goods - Services made available over the Internet.
A supply of services is a sale of digitized commodities such as music and software through the Internet to an individual consumer or a business entity for VAT purposes. The applicable VAT laws for services will apply. With zero-rated services, the VAT rate is 0%.
What is the best way to figure out where the consumer lives?
1.If the customer is a business (e.g., a corporation or a partnership), the customer is considered being a UAE resident if:
- It has a fixed establishment or a place of business in the United Arab Emirates.
- It has such businesses both inside and outside the UAE. The place of establishment is the location where the services are most directly used or will be used.
2.To establish if a business customer is from the UAE in e-commerce transactions, check if the customer has a UAE address in the supplier’s membership database (for example, a regular business customer), a UAE domain name, or a UAE IP address. These are all signs that he is from the United Arab Emirates.
3. The following may show that the customer is from a nation other than the United Arab Emirates:
- The business entity’s address in the supplier’s membership database is outside the UAE;
- The domain name or IP address implies that the company is in another country.
- At the time of the transaction, the client declares that the company is situated outside of the UAE; and
- any additional information showing that the customer is from another nation
4. If the consumer is an individual, we regard him or her to be a UAE resident if the UAE is his or her primary abode. The steps to determining his place of residence are:
- A UAE domain name or IP address (e.g,bba432539.alshamil.net.ae) shows that a client belongs to the UAE in the supplier’s membership database.
- If the client does not have a UAE domain name or IP address, the supplier shall request a declaration of the customer’s habitual residency at the time of the transaction.
Time of supply
In e-commerce, there are two scenarios:
Payment is due at the time of order placement: Because the buyer pays money while the order is being placed, the time of supply will be the time of payment.
Cash on delivery is the preferred method of payment: Here, the invoice generates while the seller dispatches the goods, even though the buyer pays only when he receives the product. As a result, the time of supply here is the moment of the invoice issue.
VAT must be accounted for based on the entire selling price of the items after payment is received or an invoice is issued. In his VAT filings, a supplier should account for VAT on e-commerce supplies alongside other company transactions. Sales orders, pro forma invoices, statements of accounts, and letters/statements of claims are not considered invoices when determining the time of supply.
How can we help?
Alya Auditors can address your concerns and provide help in a variety of tax and accounting services. Alya Auditors is a company that provides tax accounting services. Alya Auditors have worked in a variety of entities in the UAE, establishing tax accounting and supporting tax-related activities. Please contact us if you’d like to learn more about how our services might help your company.