The digital marketing industry is one of the fastest growing industries in the world. The industry is widespread across various emirates of the UAE where digital marketing services are rendered across various platforms like Social Media Marketing, SEO, Marketing through E-Mail, Marketing through Search Engine, etc. VAT has been launched in the UAE since January 1, 2018. Digital marketing services such as mentioned above are subject to 5% VAT in the UAE. All the marketing companies registered for VAT should give special attention to compliance with provisions of the VAT law related with online services in the UAE.
In UAE, complications for businesses dealing in marketing services usually arises in various forms like location of the service provider and the person receiving the service, quality of service provided, invoicing a customer for supply of services and goods (for example, customer provided with marketing material in addition to the supply of content hosting services) and invoicing a customer through a party other than the provider and recipient of the services.
It is important for businesses providing digital marketing services in the UAE to have knowledge of the VAT law provisions which they are required to comply with in order to continue conducting business in the UAE. The digital marketing businesses also need to assess the impact of VAT on their business transactions when engaging with client entities.
When assessing the impact of VAT on businesses providing digital marketing services in the UAE, it is important to consider the nature and place of supply of the services that are to be provided to client entities. If a marketing business provides online as well as offline advertising services then the impact of VAT in case of offline advertising will depend on the location in which ads are to be posted while the VAT impact for online advertisement will depend on the requirements that are to be complied with by the marketing businesses as per the provisions related with marketing services in UAE mentioned in the VAT law applicable in the UAE.
Business providing digital marketing services in the UAE should take the following steps in order to show compliance with the requirements of the VAT law related with providing online services:
1. Prepare a list containing all online advertising and marketing services that are subject to VAT in United Arab Emirates.
2. Determine the location of the customers as well as the target audience for each of the services mentioned in the list prepared by the business.
After following the above mentioned steps, the business would then be required to identify the tax liability as well as determining the tax responsibility when entering into the contract with the customer.
Now let us discuss some situations to better analyse the impact of VAT on businesses providing marketing services in the UAE.
If a marketing company based in UAE provides marketing and advertisement services to a client entity based inside the UAE but the audience that are to be targeted through the said services are located outside the UAE then in such a scenario the place of supply for VAT purposes would be considered outside the UAE and therefore no VAT would be charged as the said transaction falls outside the scope of VAT in the UAE.
If a marketing company provides marketing and advertisement services to a client entity based outside the UAE and the target audience for which the ads are to be posted are also located outside the UAE then in such a case the place of supply for VAT purposes would also be considered outside the UAE as the said services will be consumed outside the UAE. In this case as well the entity providing the marketing services will charge no VAT on the services provided to the client entity.
If a marketing company provides marketing and advertisement services to a client entity that does not has a fixed establishment in the UAE but the target audience of the ads that are to be posted is located inside the UAE then in that case the transaction would be considered as an export of service and therefore VAT will be charged at the rate 0% on the transaction.
If a marketing company in the UAE provides marketing and advertisement services to a client located in the UAE and the target audience of the ads to be posted are also inside the UAE then in that case the place of supply for VAT purposes would be the UAE as the provider and recipient of the marketing services are both located inside the UAE and in addition to this the services to be provided will be consumed within the UAE as the target audience is also located inside the UAE.
Now if we summarise the above mentioned situations then we can conclude that the place of supply in case of situation 1 and situation 2 would be outside the UAE and therefore no VAT will be charged as both the transactions are considered outside the VAT scope in the UAE, the place of supply for the situation 3 would be inside the UAE but VAT will be charged at the rate of 0% while the place of supply for the situation 4 would be inside the UAE and VAT will be charged at the standard rate of 5%.
The term outside the UAE is a reference to countries other than the VAT implementing states as per the GCC VAT agreement that was signed by all the GCC member states in the year 2017.
Provisions of UAE VAT Law Related to Digital Marketing Services
Following are the services that have been classified as ‘Electronic services’ as per the provisions of the VAT Law applicable in the UAE:
1. Supply of software and providing services to update software;
2. Supply of domain names;
3. Supply of remote maintenance and web-hosting programs as well as equipment;
4. Supply of text, images and information provided electronically such as screensavers, electronic books, photos , and other digitized files and documents;
5. Supply of games, music and films on demand;
6. Supply of digital magazines;
7. Providing space to advertise on an entity’s website along with any rights required for this type of advertisement;
8. Supply of artistic, cultural, political, scientific, educational, entertainment or sporting broadcasts;
9. Supply of distance learning;
10. streaming of live advertising content through the internet;
11. Services similar to the ones mentioned above having similar purpose, objective and function
Place of Supply for Electronic and Telecommunications Services
The place of supply for the telecommunications and the electronic Services as per Executive regulations of the VAT law applicable in the UAE shall be:
1. Inside the UAE, to an extent of the consumption of the supply in the UAE.
2. Outside the UAE, to an extent of the consumption of the supply outside the UAE.
The place of supply for all the electronic and telecommunications services would be considered to be where the services were actually consumed irrespective of the place where contract relating to the services was initiated or payment for services was made by the customer.
As per the Executive Regulations of the VAT law applicable in the UAE, a person would be considered outside the State if that person has presence of less than a month within the State or the presence of the person within the state is not connected with the time of supply of the service.
Push Digits offer businesses based in the UAE with a wide range of tax and consultancy services so that to provide them with assistance in complying with the requirements of the VAT law in various emirates of the UAE. Here at Push Digits, we have a team of tax professionals that have appropriate skills and experience to assist you in resolving your tax issues and also helping you in complying with VAT requirements in the UAE.