“Electronic services” are subject to tax when the actual use and use of them takes place in the country
The Federal Tax Authority issues a guide for the e-commerce sector
The Federal Tax Authority clarified that value-added tax is applied to “electronic services” upon the actual use and use of these services, noting that many general rules of value-added tax apply to e-commerce transactions “digital commerce”, with a number of special rules for value-added tax. It is applied specifically to e-commerce transactions.
This came in a guideline issued by the Authority on the tax treatment applied to supplies of goods and services provided through electronic means such as the Internet or similar electronic networks, which includes instructions on how to apply value-added tax to supplies of goods and services that take place within the framework of electronic commerce and how to impose and calculate the value-added tax. On those supplies.
The guide reviewed the tax treatment of “electronic services” supplies that refer to services that are provided over the Internet, an electronic network, or an electronic market, which include, for example, “supplying website domains, hosting websites and maintaining programs and equipment remotely,” and “supplying and updating software.” And “the electronic supply of images, texts and information such as pictures, screen savers, e-books, documents and other digital files”, “the supply of music, movies and games on demand,” and “the supply of magazines on the Internet”.
He explained that “electronic services” also include “the supply of advertising space on a website and the rights associated with that advertisement,” “the supply of political, cultural, artistic, sports, scientific, educational or entertainment broadcast programs, including broadcasting events,” and “direct broadcasting. Via the Internet, and the “supply of remote study services”, and any services of equivalent type that have a similar purpose and mission.
Khalid Ali Al-Bustani, Director General of the Federal Tax Authority, said: “The tax legislation is characterized by transparency and accuracy, and taking into account the strengthening of the country's leadership position as a central economic and commercial center not only at the regional level but also at the global level, and in light of the increasing importance of the e-commerce sector, clear mechanisms for tax procedures have been identified. Related to the supply of goods and services via electronic means, in a way that contributes to supporting the activities of this vital sector, which depends on locally developed digital and technological infrastructure.
He added: "The Federal Tax Authority is keen to apply the best international standards in all its activities and services that it provides to its customers in general, to contribute to preserving the advanced competitive position of the country in all sectors with the availability of the elements to encourage creativity and innovation."
His Excellency Khalid Al-Bustani affirmed that the authority is making continuous efforts to contribute to supporting the national economy in general and the digital economy in particular, noting that the e-commerce sector is witnessing rapid growth as the UAE is one of the fastest growing e-commerce markets in the region, in light of the availability of advanced digital infrastructure And a growth-friendly legislative environment.
The Federal Tax Authority indicated that all services and purchases made through online shopping sites are subject to VAT at a rate of 5%, like other purchases that take place by traditional means, if they are carried out in accordance with special conditions and controls that govern the tax treatment applicable to those supplies.
The guide - which was published on the Federal Tax Authority website www.tax.gov.ae - stated that in traditional trade transactions, goods and services are usually supplied from a physical location such as a store or representative office, with the supplier or recipient present in the same site, as for e-commerce Or what is called "digital commerce", it generally refers to supplies of goods and services that take place through the Internet or similar electronic networks, where goods and services are obtained or supplied through electronic means such as computers or mobile phones through websites or electronic applications.
The guide detailed the basics of the tax treatment for goods purchased through electronic platforms, and services that are supplied through electronic means, indicating that taxable persons impose value-added tax on their customers in return for taxable supplies of goods and services, as value-added tax is applied to taxable supplies. Either the basic rate of 5% or the zero rate, and if the supply is exempt from tax, it is not treated as a taxable supply.
The authority clarified in its guideline that different conditions and requirements may apply to compulsory registration and voluntary registration, depending on whether the person has a place of residence in the state, as it is necessary to first determine whether the person is a resident or non-resident in the country when considering the registration rules that apply. Therefore, the person has a place of residence in the state for the purposes of VAT registration if he has a place of establishment or a fixed establishment in the state.
The guide deals with the legal requirements for compulsory registration and voluntary registration, noting that a non-resident person may not voluntarily register for value-added tax on the basis of his “taxable expenditures,” as well as the criteria for determining the place of supply if it is inside or outside the country, and the tax treatment for supplies of goods through Online platforms for suppliers residing in the country that are subject to tax, and for suppliers who are not resident in the country.
The guide also deals with the procedures for recovering input tax in e-commerce transactions, and the "reverse-charge mechanism" that may apply to e-commerce transactions. The reverse-charge mechanism aims to reduce the compliance burden and the administrative burden related to the registration and compliance of non-resident suppliers, as it equals the recipient of the service or recipient. Goods from a supplier outside the country and the service recipient or recipient of goods from a local supplier, in order to ensure that local suppliers in the country are protected from any negative effects they may incur as a result of consumers purchasing their purchases from abroad.
The guide reviewed all aspects related to the tax treatment of supplies made through agents and the requirements for tax invoice in e-commerce transactions.