E-commerce, also known as “electronic commerce” and “digital economy”, generally refers to the supplies of goods and services over the internet or a similar electronic network, with these goods and services being sourced by electronic means—such as through a computer, phone, website or other digital applications.
The VAT treatment of supplies of goods and services over the internet includes the following:
- Supply of domain names, web-hosting and remote maintenance of programs and equipment;
- Supply and updating of software;
- Supply of images, text, and information provided electronically, such as photos, screensavers, electronic books and other digitised documents and files;
- Supply of music, films and games on demand;
- Supply of online magazines;
- Supply of advertising space on a website and any rights associated with such advertising;
- Supply of political, cultural, artistic, sporting, scientific, educational or entertainment broadcasts, including broadcasts of events;
- Live streaming via the internet;
- Supply of distance learning; and
- Services of an equivalent type which have a similar purpose and function.
For a supply to fall under the special VAT rules for electronic services, the supply must meet two conditions:
1. The service in question must be one of the services mentioned in the above list of services; and
2. The service must be automatically* delivered over the internet, an electronic network, or an electronic marketplace.
*Refer to the E-commerce VAT Guide for further clarification on these two conditions as well as what “automatically” refers to.
Place of Supply of Electronic Services
There are two main conditions around the place of supply of electronic services set out in the E-Commerce VAT Guide:
1. The place of supply of electronic services is in the UAE, to the extent* of the use and enjoyment of the supply in the country; and
2. Outside the UAE, to the extent of the use and enjoyment* of the supply outside the country.
*Refer to the E-commerce VAT Guide for more explanation on “extent” and “enjoyment”.
VAT Rate on E-commerce
The default VAT rate on the taxable supply of services in the UAE is 5%. The supply, however, may be zero-rated if it falls under any of the zero-rating scenarios in Article 45 of the Decree-Law.
Further, where the place of supply is outside the country, no UAE VAT would apply.
The summary of the VAT rates under different scenarios are set out in the table below:
*Source - The Federal Tax Authority publications
These comments should be read in conjunction with other, policies, notices and relevant guidance published by the UAE Federal Tax Authority. This shall also not constitute an official advice.
In a nutshell, it is important to note there may be a possibility that foreign e-commerce service providers who deliver services to non-VAT registered end users in the UAE will be obliged to register in the UAE for VAT purposes. Taxpayers must seek advice from professionals regarding this area. Questions? Reach out to us now for more clarifications!