UAE VAT Compliance for ecommerce business
VAT on ECommerce sellers
The UAE Federal Tax Authority has clarified the UAE VAT compliance that apply to ecommerce transactions. The FTA discuss the tax rules for ecommerce in UAE during workshop for accredit tax agents. During the workshop, participants’ questions about the tax treatment of the ecommerce sector were answer by FTA experts.
FTA officials indicate that all goods and services purchase through online shopping sites are subject to five percent VAT. If the place of supply is in the UAE. The tax is also apply 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 goods is subject to VAT. Ecommerce refers to supplies of goods and services over the internet or a similar electronic network. With goods and services source or supplied by electronic means, such as through a computer, phone website or electronic applications.
When should you UAE VAT registration?
If you are a resident of UAE if in the last 12 months, or next 30 days will cross the,
- (Taxable supplies + Imports) crosses the Mandatory threshold (AED 375,000) you must register
- (Taxable supplies + Imports + Expenses subject to VAT) crosses the Voluntary threshold (AED 187,500) you have the option to register.
If you are not a resident in UAE and do not have another resident in UAE. Who will take the responsibility to account for VAT. You will need to VAT register. There is nil threshold for UAE VAT registration.
However, note that you cannot register for VAT voluntarily purely on the basis of expenses subject to VAT in UAE.
What happens if you don’t register for VAT, even after crossing the mandatory threshold?
You will penalize AED 10,000 by the FTA for late registration. You will give an effective date of registration based on. When you cross the threshold. Because of this you will require to file returns in the past.
You will then have an additional penalty for late return filing of AED 1,000 for the first return and AED 2,000 for each return after that within the 12 month period. There will also be a charge for late payment fee, which will be a percentage of the payable amount, this can go up to 300%.
Accounting for VAT in the UAE
The FTA deems that accounting for UAE VAT as the responsibility of the taxable supplier. However, in certain situations, the responsibility of accounting for VAT may be transferred to the recipient under ‘reverse charge mechanism’. Reverse charge mechanism applies in the following cases:
- If the supplier is not having a place of residence in the UAE
- The supplier doesn’t charge VAT on the supply (supplier not registered for VAT in the UAE)
- The recipient is a taxable entity that has a place of residence in the UAE
In case, the reverse charge mechanism applies, the recipient is required to account for VAT to the FTA at the applicable VAT rate. The agreed price of the goods will be treated as VAT exclusive, which means the recipient should charge VAT on top of the agreed price. Consult with the best VAT consultants in Dubai for efficient advice on applying reverse charge mechanism on ecommerce supplies.
E-platforms as Principal or Agent
Ecommerce in UAE, tax treatment in of the goods and services made through electronic platforms, websites, or markets is dependent upon whether the electronic market functions as the principal or agent. In case, the electronic platform operates as the principal, such online markets are considered as a supplier of goods or services that is responsible for accounting for VAT. If the online market is functioning as an agent on behalf of another supplier, the tax treatment entirely depends on whether the online market is acting as a disclosed or undisclosed agent. For further guidance, seek advice from registered tax agents in Dubai, UAE.
VAT Services in the UAE
With the introduction of VAT in the UAE, there are considerations that businesses would have to take care of concerning tax consulting. We at FZCO Accountants have our team of experts to help you with company formation, registration, and counselling. For any queries on VAT consultation for companies in the UAE or outside of the UAE, feel free to reach to us.