GCC Indirect Tax Weekly Digest
August 20, 2020
FTA publishes VAT guide on e-commerce
The United Arab Emirates (UAE) Federal Tax Authority (FTA) has published a Value Added Tax (VAT) guide on e-commerce. The guide is of significant importance for any business which makes supplies of goods and services through the Internet or any other electronic means.
While most of the general principles of the VAT legislation apply to e-commerce transactions, there are a number of principles specifically applicable to e-commerce (also known as ‘digital economy’) which are discussed in the guide:
- The guide discusses a number of scenarios regarding the supply of goods and services by resident and non-resident suppliers and the VAT considerations that need to be made.
- The guide notes that all supplies of goods made through online shopping (i.e. through an electronic platform, such as a website or a marketplace) are subject to UAE VAT as any other purchase made through traditional outlets, where the goods are supplied in the UAE. It is also noted that the place of supply of these goods will also be the UAE, where such goods are exported from the UAE to outside the Implementing States.
- A number of different scenarios are described in the guide and the VAT treatment applicable for the supplies of goods. One point to note, would be the situations where the obligation to account for VAT passes to the recipient of the goods under the reverse charge mechanism. It is noted that where a non-resident supplier does not charge VAT on a taxable supply of goods that are already in the UAE (e.g. where the supplier is not registered for VAT purposes in the UAE), supplies such goods in the UAE electronically to a taxable person with a place of residence in the UAE, the recipient of the goods can account for VAT under the reverse charge mechanism. This is subject to the relevant conditions being satisfied. The guide also notes that where the VAT on the supply of goods is the obligation of the non-resident supplier who is not yet registered for VAT in the UAE, the supplier must apply to register for VAT in the UAE.
Businesses which are involved in such e-commerce transactions should carefully review their arrangements and re-confirm historic positions taken with respect to such transactions, following this new guidance from the FTA.
- The place of supply for electronic services (ES) is the location of the ‘use and enjoyment’ of the services. Where ES are delivered to a physical place, the place of supply is that place. Where ES are delivered to a device (e.g. streaming music), the place of supply will be the recipient’s location at the time the service is supplied.
- Priority should be given to the most precise information available to determine the place of use and enjoyment (e.g. IP address). For example, if a KSA resident orders a streamed film to watch on a computer with a UAE IP address, the use and enjoyment of the film will be in the UAE.
- The guide clarifies the services which are considered ES; these must be services which are automatically delivered over the Internet or an electronic network/marketplace. They must be one of the examples the FTA provides, and do not include services where the Internet is merely used for communication (e.g. legal advice or hotel bookings). Furthermore, they must be automatically delivered over the Internet or electronic network/marketplace with minimal or no human intervention (i.e. the services should still be essentially automated even with any minimal human intervention to enable the supply).
- Where ES are supplied through an electronic marketplace, if the electronic marketplace is not acting as an undisclosed agent of the supplier (i.e. it is acting as a disclosed agent), the supply would be considered to be made directly from the supplier to the recipient. Where the electronic market place acts as an undisclosed agent for the supplier, there would be two supplies for VAT purposes: one between the supplier and the electronic marketplace, and another between the electronic marketplace and the recipient. The guide clarifies the criteria for determining the nature and VAT implications of potential agency arrangements.
- As in the case of supplies of goods, the guide also makes reference to when the reverse charge mechanism applies in respect of cross-border supplies of electronic services into the UAE. The reverse charge mechanism applies where the supplier does not have a place of residence in the UAE and the recipient is either registered or required to register for VAT in the UAE (i.e. a taxable person in the UAE). Where the reverse charge mechanism applies to a supply, the recipient must account for the VAT to the FTA at the applicable VAT rate, subject to all of the relevant conditions being ascertained by the supplier.
The guide also notes that where the same supply is made to a non-taxable person in the UAE, it would not be subject to the reverse charge mechanism and would be the obligation of the non-resident supplier to apply the relevant VAT treatment to the transaction.
Businesses that engage in e-commerce or supply electronic services in the UAE should familiarize themselves with the guide as a matter of priority.
Progress on VAT Law
Followed by discussions and recommendations, the Shura Council in the Sultanate of Oman referred the draft VAT Law to the State Council as a matter of urgency. The State Council decided to return the draft Law back to the Shura Council to consider discrepancies in view, as reported widely by the newspapers in Oman. The tax landscape is rapidly evolving in Oman and we will therefore keep you appraised on the latest developments as they take place.
This digest is for information purposes only and should not be construed as advice. It does not necessarily cover every aspect of the topics with which it deals. You should not act upon the contents of this alert without receiving formal advice on your particular circumstances.