The Federal Tax Authority(“FTA”) confirmed that several general Value Added Tax (VAT) rules apply to e-commerce transactions, in addition to a number of special VAT rules specifically applied to e-commerce transactions. The FTA outlined that e-commerce generally refers to the supplies of goods and services that take place on digital platforms, where the supply of goods and services are obtained electronically, including via computers or mobile phones for purchase from websites or electronic applications.
This announcement was made during its second virtual workshop for accredited tax agents, on the tax treatment applied to the supplies of goods and services made through electronic means, such as the internet and similar electronic platforms.
During the workshop, which saw the participation of 225 accredited tax agents and a number of FTA officials, the FTA gave a presentation on how to apply VAT on the supplies of goods and services made within the e-commerce framework and how to calculate VAT on these supplies. The FTA also presented an overview of e-commerce, the principles of VAT on the supply of goods via e-commerce and the supply of electronic services, and the effects of VAT on electronic markets using practical examples.
His Excellency Khaled Ali Al Bustani, Director General of the FTA, stressed that the number of FTA accredited tax agents is increasing steadily, in line with the continuous growth of taxable persons within the tax system.
H.E. Al Bustani said: “The number of accredited tax agents increased in the first 10 months of 2020 by more than 10% to 515, compared to 468 in the same period last year. This increase provides more opportunities for taxpayers wishing to deal with the FTA through tax agents by offering them an extensive, constantly-updated list of approved agents on the FTA’s website.”
H.E. added: “The FTA maintains communication with its strategic partners in the government and the private sector, with the aim to continuously develop the tax system and to ensure that performance is at the highest levels of quality and efficiency. These workshops serve as a model of effective cooperation and positive partnership between the authority and its partners.”
H.E. also reiterated that the FTA intensify its efforts to ensure that all tax agents adhere to its professional standards, which were established according to best international practices. He also highlighted the important role played by tax agents as they represent a critical factor in the success of the tax system.
During the workshop, participants’ questions about the tax treatment of the e-commerce sector were answered by FTA experts. The participants were also briefed about the technical tax aspects related to the e-commerce sector and their legal principles, with many practical examples of their applications. Several of the participants’ questions were answered with the definitive aim of increasing the level of accuracy and ease of tax compliance.
The presentation indicated that all goods and services purchased through online shopping sites are generally subject to 5% VAT if the place of supply is in the UAE. The tax is also applied to most of the goods that are sold inside the UAE; subject to some exceptions per the VAT legislation (such as medicines sold on websites). Additionally, the import of goods is subject to VAT.
The presentation also clarified that goods exported through e-commerce might be eligible for VAT at the zero rate, as long as certain conditions are fulfilled. The tax treatment varies according to the party contractually responsible for delivering goods. Exports to the GCC countries are currently also eligible for zero-rated VAT. Both official and commercial evidence of export must be obtained and retained.
The presentation confirmed that accounting for VAT is the responsibility of the taxable supplier, however, the reverse charge mechanism (“RCM”) is applied if the recipient is VAT registered and the supplier does not have a place of residence in the UAE and is not a VAT-registered person. In the event that a supply is made by a person who is not a resident of the UAE, to a non-registered person in the UAE, the RCM is not applicable and the non-resident supplier is required to register for VAT and to account for VAT on its supplies.
According to the presentation, the RCM aims to reduce the compliance and administrative burden related to the registration and compliance of non-resident suppliers. The RCM also results in equivalency between supplies made by a resident supplier and supplies made by a non-resident, ensuring that local suppliers in the country are protected from any negative effects that might occur as a result of foreign purchasing.
The presentation also addressed the tax treatment of the supply of electronic services, which are provided directly (i.e. automatically) over the internet, an electronic network, or an electronic market, including the supply of domain names, web-hosting and remote maintenance of programmes and equipment, software, images, text and information provided electronically such as screen savers, electronic books, documents and other digitised files, music, movies and games on demand, and online magazines.
FTA experts indicated that supplies of goods and services are often made through electronic platforms, portals, or markets, which indicated that tax treatment is dependent upon whether the electronic market operates as the principal or agent. If the electronic market acts as principal, the online market is treated as a supplier of goods or services and is responsible to account for VAT. If the online market operates as the an agent acting on behalf of another supplier, tax treatment is fully dependent on whether the online market is acting as a disclosed or undisclosed agent.
The Authority’s experts also addressed the tax treatment of supplies made through agents and the requirements for a tax invoice in e-commerce transactions.