How Does the UAE VAT Apply to Electronic Services?
The digital economy is a critical part of global trade and the sector continues to grow. However, the application of Value Added Tax (VAT) on digital services can be complex, especially if it is supplied internationally. The UAE VAT Law includes special provisions to address the complexity of digital services, which it classifies as electronic services. As per Article 23 of Cabinet Decision No.52, 2017, electronic services are “services automatically delivered over the internet, or an electronic network, or an electronic marketplace.”
Businesses need to understand whether their supply of services qualifies as ‘electronic services’ and must know how it will be treated under the regime of VAT in the UAE. You can consult with VAT consultants in Dubai to make an accurate assessment regarding the VAT treatment of electronic services. In this article, we intend to share our expertise on the VAT treatment of electronic services in the UAE so that you can meet your VAT compliance obligations efficiently. Keep reading for further information:
Which Supplies Are Covered by the Term ‘Electronic Services’?
You need to strictly follow the definition given in the Law to determine if your supply qualifies as an electronic service. Here, you must keep in mind that the service must be automatically delivered to be classified as an electronic service. It means the delivery of the service should be through an automated system. The Law gives a list of services that can be seen as supplied electronically:
- Supply of domain names, web hosting and remote maintenance of programs and equipment
- The supply and updating of software;
- The supply of images, text, and information provided electronically such as photos, screensavers, electronic books and other digitized documents and files;
- The supply of music, films and games on demand;
- The supply of online magazines;
- The supply of advertising space on a website and any rights associated with such advertising;
- The supply of political, cultural, artistic, sporting, scientific, educational or entertainment broadcasts, including broadcasts of events;
- Live streaming via the internet;
- The supply of distance learning;
- Services of an equivalent type which have a similar purpose and function
Place of Supply of Electronic Services
You need to establish the place of supply to determine if a supply will be taxed in the UAE. Special rules have been set out in Article 31 of the Federal Decree-Law No.8 of 2017 on Value Added Tax (‘the Decree Law’) to establish the place of supply of Telecommunication and Electronic Services. However, it is advisable to consult with VAT consultants in Dubai to accurately determine the place of supply. As per Article 31 of the Decree Law, the Place of Supply shall be,
- In the State, to the extent of the use and enjoyment of the supply in the State.
- Outside the State, to the extent of the use and enjoyment of the supply outside the State.
Moreover, the actual use and enjoyment of all telecommunications and electronic Services shall be where these Services were used regardless of the place of contract or payment.
VAT Treatment of Electronic Services in the UAE
The place of supply of electronic services determines whether the electronic services are subject to VAT in the UAE. If the supply is outside the UAE, no UAE VAT will apply. However, if the place of supply is in the UAE, the supply will fall within the UAE VAT scope. The default VAT rate on default VAT rate on a taxable supply of services in the UAE is 5%. VAT consultants in Dubai can help you with assessing the accurate VAT treatment of electronic services.
Could Electronic Services Be Zero-Rated under the UAE VAT?
The supply of electronic services can be zero-rated if it meets certain conditions. The Executive Regulations, Article 31 provides the conditions for ascertaining if an electronic service can be zero-rated. As per this provision, an electronic service can be zero-rated rather than standard-rated at 5%. A supply of electronic service can be zero-rated if it meets the following conditions:
1) The Services are supplied to a Recipient of Services who does not have a Place of Residence in an Implementing State and who is outside the State at the time the Services are performed
2) The Services are not supplied directly in connection with real estate situated in the State or any improvement to the real estate or directly in connection with moveable personal assets situated in the State at the time the Services are performed
Consult with the Top VAT Consultants in Dubai, UAE
The VAT treatment of electronic services can be complex for taxable persons. However, it can be simplified with the help of VAT consultants in Dubai such as Jitendra Chartered Accountants (JCA). We are one of the top tax consultants in Dubai serving clients of a wide range of industries. JCA’s tax agent in Dubai is approved by and registered with the Federal Tax Authority (FTA). We can provide robust VAT services in Dubai such as VAT accounting, VAT filing, VAT refunds, VAT reconsideration etc. Talk with us if you need any help on any tax-related matters.