Rules to Follow to Determine VAT on E-commerce Transactions in the UAE

As the e-commerce industry in the UAE is turning highly competitive with the entry of more players, the challenges related to VAT have become increasingly pertinent. Realising the need to resolve the issues of VAT in the e-commerce industry, the Federal Tax Authority (FTA) has come up with solutions in the form of VAT Guides and workshops for accredited tax agents in Dubai, UAE. Determining VAT on e-commerce sales is challenging due to the uniqueness of the mode of transaction. Gleaning insights from the VAT clarifications, we guide you about the rules to follow while determining VAT on e-commerce transactions in the UAE.

VAT on Online Purchase of Goods

Any good or services purchased through online shopping sites are generally subject to five per cent VAT. However, the critical condition here is that the place of supply should be in the UAE. The standard VAT rate is also applicable to most of the goods sold inside the UAE, subject to exceptions granted to medicines sold through websites. Apart from that the import of goods is also is subject to VAT in the UAE.

VAT on Export of Goods in E-commerce Sector

Export of goods from the UAE under e-commerce is eligible for zero VAT rate as per Article 30 of Executive Regulation. However, zero-rating is subject to certain conditions. The VAT treatment differs according to the party who is contractually responsible for the delivery of goods. Consider the following requirements to check if your exports are eligible for zero-rating:

  1. If the supplier is responsible for arranging transport of sold goods from the UAE or appoints an agent to do so on its behalf (direct export), the supply may be zero-rated
  2. The supply of goods is zero-rated if the customer from an overseas country is arranging the collection of the goods from the supplier in the UAE and then exporting the goods. The zero-rating is also eligible if the customer has appointed an agent to do so on his behalf (indirect export)

Also, exports to the GCC countries are eligible for zero-rated VAT. The businesses, however, must obtain and retain official and commercial evidence for the exports. The official evidence could be a certificate issued by the relevant Customs Department that confirms the exit of goods from the UAE. Acceptable commercial evidence includes airway bills, bills of lading, consignment notes, and certificate of shipments.

Accounting for VAT in the UAE

The FTA deems that accounting for VAT in the UAE as the responsibility of the taxable supplier. However, in certain situations, the responsibility of accounting for VAT may be transferred to the recipient under ‘Reverse Charge Mechanism’. Reverse Charge Mechanism applies in the following cases:

  1. If the supplier is not having a place of residence in the UAE
  2. The supplier doesn’t charge VAT on the supply (supplier not registered for VAT in the UAE)
  3. The recipient is a taxable entity that has a place of residence in the UAE

In case, the Reverse Charge Mechanism applies, the recipient is required to account for VAT to the FTA at the applicable VAT rate. The agreed price of the goods will be treated as VAT exclusive, which means the recipient should charge VAT on top of the agreed price. Consult with the best VAT consultants in Dubai for efficient advice on applying Reverse Charge Mechanism on e-commerce supplies.

E-platforms as Principal or Agent

The tax treatment of the goods & services made through electronic platforms, websites, or markets is dependent upon whether the electronic market functions as the principal or agent. In case, the electronic platform operates as the principal, such online markets are considered as a supplier of goods or services that is responsible for accounting for VAT. If the online market is functioning as an agent on behalf of another supplier, the tax treatment entirely depends on whether the online market is acting as a disclosed or undisclosed agent. For further guidance, seek advice from registered tax agents in Dubai, UAE.

VAT Treatment of Electronic Services

The FTA defines e-commerce services as the services that are automatically delivered over the internet, an electronic network or an electronic market place. Such services include

  • Domain names & web hosting services
  • Software & updating of software
  • Images, text, screensavers, e-books
  • Music, films, games on demand
  • Supply of online magazines
  • Supply of advertising space on a website and any rights associated with it
  • Political, cultural, artistic, sporting, scientific, educational or entertainment broadcasts
  • Live streaming via the internet
  • Distance learning through online services

A service doesn’t meet the definition of electronic services if it is not any one of the services listed by the FTA. Supply of services in which the parties use the internet only to communicate with each other or to facilitate bookings won’t be termed as electronic services for VAT purposes. In this respect, services such as the supply of legal or financial advice, transport services, or hotel accommodation will not constitute an electronic service. Taxable persons get in-depth knowledge about e-commerce services from the best tax agents in Dubai, UAE.

Need VAT Advice? Talk with Registered Tax Agents in Dubai

The current state of the e-commerce industry in the UAE has surpassed the estimates by recording unprecedented growth in the wake of a pandemic-induced boom. As for any industry, e-commerce players are also required to comply with their VAT obligations. Since the internet is the market place, calculating the VAT rates and determining the tax obligations seems to be challenging. However, tax agents in Dubai, such as Jitendra Chartered Accountants (JCA) assist the taxable person with his tax obligations in accordance with the VAT legislation. JCA provides advice on VAT registration, VAT return filing, VAT deregistration, tax invoices, and applying for VAT clarification etc. JCA’s VAT services in Dubai enables the taxable persons to scale new heights by creating a good reputation before the government and the FTA.

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