Guide issued for E-Commerce Zone by Federal Tax Authority

• Within the United Arab Emirates, Electronic services have to pay the Value Added Tax, (VAT)
• Country’s position, the e-commerce segment, has been strengthened by national legislation on tax

The FTA, Federal Tax Authority, has announced that e-commerce services that are used or enjoyed within the boundaries of the United Arab Emirates are liable to pay VAT. Most regulations of VAT are applicable to e-commerce, however, keep in mind that there are certain rules that are made especially for e-commerce deals.

There is a guide that FTA issued, which explains how the Value Added Tax Law is applied to supply of services and goods that are provided electronically, like electronic networks or the internet. This guide also includes steps on how to apply the VAT on services and goods which are supplied in the range of e-commerce. Moreover, it guides on the accounting and imposition for Value Added Tax on the supplies.

This guide further outlines the treatment of supply in terms of tax. These supplies consisted of services related to electronics, like services linked directly to the internet, electronic market, or electronic network. This includes web hosting, domain names, text, images, remote preservation of equipment and programs, software and data that can be provided through electronics; movies, music, games, images, online magazines, documents, screen savers, and electronic books.

Moving on, there are some other services which fall under the category of electronic services. This includes the supply of space for advertisements on a site and the associated rights of the advertisement, moreover; artistic, sports, cultural, political, educational, broadcasting of events, entertainment broadcasts, the supply of learning services through distance, services with similar goals and live streaming through the internet.

UAE’s tax legislation has characteristics of accuracy and transparency and considers the build up of the leadership position of the nation as a commercial and central economic center, on a global scale. With the increase in the value of e-commerce, clear mechanisms have been found for procedures. VAT is related to the services and goods supplied through electronics, which means that it contributes to supporting activities of the vital zone. This depends on the technological and locally produced infrastructure.

Federal Tax Authority has been keen on applying the greatest international standards on every activity and service it gives to the customers. Moreover, it contributes to preserving the highest competition positions in the country throughout all sectors; this with the methods to enhance and encourage innovation and creativity.

FTA is continuously contributing and supporting the economy of the country with its efforts. E-Commerce is taking a huge step in development and growth. The United Arab Emirates has the biggest e-commerce facilities, that are enhanced with the accessibility of a friendlier legislative environment and a high tech digital infrastructure.

The Federal Tax Authority has highlighted that all services and goods that are purchased through shopping sites online are liable to pay 5% VAT if the supplier’s location is within the United Arab Emirates. This purchase will be treated like all other purchases according to the important provisions ruling over the tax treatments on supplies.

This guide released by FTA can be reached with ease on the website, www.tax.gov.ae, which explains that in traditional transactions of trade, services and goods are supplied from an actual physical location like a representative office or store, with the recipient and supplier from the same location. In the case of e-commerce, it associates with the supply of goods and services which take place through the internet or electronic networks. Here, goods and services can be supplied or obtained with the means of electronics like mobile phones or laptops via applications or websites.

Furthermore, the guide gives guidance about the VAT treatments on goods that are purchased from electronic services and platforms through electronics, which indicates that VAT should be charged on taxable persons when transacting with customers for goods and services. If, however, the supplies are exempted from tax, then they cannot be treated as taxable supplies.

The guide also clarifies that different requirements and conditions can be applied to voluntary or mandatory registration, which depends on the area of residence of the person. They need to be registered as a United Arab Emirates citizen for the Value Added Tax to apply.

Moreover, the guide deals with legal requirements for both voluntary and compulsory registration, keeping in mind that an overseas resident cannot register for VAT, as his residence is in another state. In addition to this, the guide shows us the criteria that determines the VAT treatment of the supply of services and goods through online platforms and the supply of place which shows the location of the supply or supplier, so that the tax can be applied accordingly.

Henceforth, this guide provides detailed information on all procedures that are for recovering tax input on e-commerce proceedings and the ‘reverse charge mechanism’ that can be applied to e-commerce deals. This reverse charge mechanism has a goal to decrease the administrative load and the pressure of compliance that are related to the collection of VAT from residents outside UAE borders. Therefore, it forms a smooth field for the supply of services and goods from any local supplier or supplier outside of the UAE. This makes sure that local suppliers are not preconceived in a bad way by consumers that purchase from non-resident suppliers.

There are more details about different aspects of tax treatment and e-commerce deals on the guide available on FTA’s website; www.tax.gov.ae