E-commerce refers to business transactions (sales and purchases) that are conducted electronically, as on the Internet.
If a person is supplying goods or services in UAE via the Internet or any other electronic media, he is accountable for the collection of VAT as in traditional commerce. This also applies notwithstanding that the transactions are effected through a third-party e-commerce service provider.
The medium through which the transaction occurs does not alter the taxability of the transaction.
All physical goods supplied over the Internet attract VAT if the supplier is a taxable person and the supply is made in UAE. For example, if a taxable person sells goods via the Internet and the goods are delivered locally, he is making a standard-rated supply and VAT is chargeable at 5%.
VAT is a consumption tax imposed at each stage of the supply of goods & services. VAT is payable at every taxable supply and deemed supply made by the taxable person and on the import of concerned goods. However, there are certain supplies that are either zero rated or exempt from VAT as mentioned in the Federal Law no. 7 of the 2017 and the executive regulations thereby. VAT is charged at 5% standard rate or zero rated.
Only a VAT-registered person can charge and collect VAT on all supplies of goods and services made in UAE apart from exempt or zero-rated supplies. The VAT-registered persons need to account and pay the VAT collected to the Federal Tax Authority within 28 days from the end of his tax period.
A person making taxable supplies is required to register himself mandatorily if the value of his supplies reaches AED 3,75,000. He can also get registered voluntarily if the value of supplies reaches AED 1,87,500.
Business Records to be maintained:
VAT records are to be maintained for 5 years after the end of the tax period to which they relate.
Complete and submit the tax returns and pay the Federal Tax Authority the amount of tax no later than 28 days following the end of the tax period concerned or by such other date as directed by the authority.
Physical goods supplied over the Internet
The medium through which the transaction occurs does not alter the taxability of sale of goods.
Physical goods – Standard-rated
All physical goods supplied over the Internet attract VAT if the supplier is a VAT-registered person and the supply is made in UAE. The guiding principle for charging of VAT on e-commerce transactions is the same as that for traditional commerce. Therefore, as a VAT-registered person, if someone sell goods via the Internet and the goods are delivered locally, he is making a standard-rated supply and VAT is chargeable at 5%.
Physical goods – Zero-rated
Supply of goods made over the Internet will be zero-rated only if the goods are exported out of UAE to a non-implementing state. However, necessary export documents are required to be maintained.Hence, whether VAT is charged at 5% or 0% on the supply of goods depends on the destination of delivery (export to an implementing state is an exception to this).
For example, if a taxable person sells books over the Internet, he will need to charge VAT at 5% on the price of the books if these are delivered to a local destination. However, if he exports the books to another country (non-IS), he will be able to zero-rate the supply of the books provided he maintains the necessary documents to prove his exports.
For goods supplied over the Internet which are exported via a postal or courier company, the taxable person needs to maintain:
a)parcel posting receipt/courier consignment note and
b)invoice to the overseas customer.
Services / Digitized Goods – Services supplied via the Internet
A sale of digitized goods such as music and software over the Internet to an individual consumer or a business entity is a supply of services for VAT purposes. The relevant VAT rules for services will apply. In case of zero-rated services, VAT is levied at 0%.
How to determine the place of residence of the customer?
If the customer is a business (e.g. a company or a partnership), the customer shall be treated as belonging in UAE if:
For e-commerce transactions, to determine if the business customer belongs to UAE, it should be examined if the customer has a UAE address in supplier’s membership database (for instance, a regular business customer), a UAE domain name or a UAE IP address. These are indications that he belongs to UAE.
The following may indicate that the customer belongs to a country outside UAE:
If the customer is an individual, the customer is considered as belonging in UAE if UAE is his or her usual place of residence. To determine his place of residence the following steps are to be taken:
The time of supply of the goods determines when we should charge and account for VAT. As per time of supply rules, the liability to pay VAT arises either at basic tax point or the actual tax point; whichever occurs earlier.
|Transfersupervised bysupplier||Goods||Transfer of lawful possession|
|Supervisionbysuppliernotrequired||Goods||Collection with lawful possession|
|Assemblyandinstallation||Goods||Completionofassembly or installation|
|Importundercustomslegislation||Goods||As per customs legislation|
|Delivery towards“saleonapproval”||Goods||Acceptance or 12 months from delivery|
|Provisionofservices||Services||Completion of service|
These are the general rules to determine the time of supply. In case of online purchase of goods and services it can be inferred from the above table that either the time of payment or the time of issuance of invoice will be the time of supply as mentioned below.
There can be two cases in e-commerce:
The payment received must be to discharge an obligation to pay for the supply arising from the adoption of the sale. The mere receipt of payment will not be regarded as consideration received if it is held as security pending the adoption of the sale. If such security deposit is collected upfront, payment is received only when the deposit is applied as all or part of the consideration for the supply, following the adoption of the sale.
Once there is a payment received or an invoice issued, VAT must be accounted for based on the full selling price of the goods. A supplier should account for VAT on e-commerce supplies together with other business transactions in his VAT returns. In general, documents such as sales order, pro-forma invoice, statement of accounts and letter/statement of claims are not considered as invoices to determine the time of supply. This is because these documents are often not billing for payments and would therefore not be treated as invoices based on normal commercial practices.
A Tax Invoice shall contain all of the following particulars:
A simplified tax invoice shall contain all of the following particulars:
A simplified tax invoice may be issued in either of the following situations:
If there are or will be sufficient records available to establish the particulars of a supply, a taxable person is not required to issue a tax invoice for the supply where the supply is a wholly zero-rated supply.
The taxable person may issue a tax invoice by electronic means provided that:
Where the supply of goods or services is considered as supplied in an implementing state, the taxable person must include the following additional particulars in the document issued:
You can issue either a physical tax invoice or an electronic tax invoice for the sale via the Internet.
All prices displayed, advertised or published over the Internet for any supply of goods or services should be inclusive of VAT.
VAT Treatment of Sales of Services / Digitized Goods supplied over the Internet
|Customer’s domain name ends with dot ae||Standard-rate
Customer treated as belonging to U.A.E.andservice isconsumedinU.A.E.
|Customer’s domain name does not end with dot ae (e.g. email@example.com) and customer declares that his usual place of residence is outside U.A.E.||Zero-rate
Customer treated as belonging in a country outside U.A.E. and the service is provided to a non-resident. In case customer belongs to an implementing state and he is registered there as a taxable person, then the place of supply is that implementing state and supplier need not pay any VAT. In case customer belonging to implementing state but not registered there as a taxable person, then the place of supply is U.A.E. and the VAT is charged @ 5%. This is not a zero- rated export.
|Customer’s domain name does not end with dot ae (e.g. firstname.lastname@example.org) and customer declares that his usual place of residence is in U.A.E||Standard-rate
Customer treated as belonging toU.A.E. based on his declaration and service is consumed in U.A.E.
|Customer’s domain name does not end with dot ae and a customer does not declare his usual place of residence.||Standard-rate
Customer treated as belonging toU.A.E.
IMC is a cross border advisory firm focusing on the AMEA (Asia, Middle East, and Africa) markets. We specialize in corporate advisory services, global mobility services, private client and family advisory, international tax, corporate finance, mergers and acquisitions, investment advisory and business support and outsourcing solutions. IMC has been operating in GCC for over 10 years. We have a dedicated “VAT in GCC” team set-up in Dubai, UAE.
How can IMC assist you?
IMC’s comprehensive approach to tax advisory comes from a thorough understanding of ground realities and decades of experience of serving clients around the world. You can trust us your partners in the successful adoption of VAT practices in your business and being 100% compliant. Our team is involved in every stage of the process followed by a post adoption review and continuously updating you about the amendments to the laws. IMC can assist as follows:
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