Over the last few years, the UAE’s economy has been growing, expanding and evolving seamlessly. Therefore, specific regulatory changes and reforms have been introduced in recent years to aid this growth. Adding to that list, on Wednesday, the UAE’s Federal Tax Authority, (FTA Rules) clarified its stance on VAT applicability on e-commerce purchases. Here’s a look at the newly specified rules, and how it will impact the Emirati economy. 

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Clarifications By FTA

On Wednesday, the FTA Rules clarified that while there is a 5% VAT on general e-commerce-related purchases, there would be several special rules which will apply only for e-commerce-related transactions. The FTA also stated that the VAT would be applicable on digital services. This includes domain name supply, web hosting and even remote-based maintenance programs. Furthermore, VAT will also be applicable for the sale of equipment, images, information, electronic books, software and other data provided electronically via digitised formats. Under this new rule, movies, music, games, online magazines, e-books, documents and even sound clips will fall under the VAT regime. 

Furthermore, other electronic supplies, such as advertising space on websites, ad rights, broadcasts related to social, economical, cultural, political, educational, entertainment and sports will also come under the new VAT list. Also added to the list is live streaming services, broadcasts of events, the supply of distance-education materials and services and every service that has a similar objective or purpose. 

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UAE’s Growth

The e-commerce sector experienced a rejuvenation and further growth as a result of the COVID-19 pandemic. As a result of the stringent lockdown policies, most companies and customers took their business and shopping online. Hence, the average spending of Emirati citizens in this year has crossed Dh6,000. The e-commerce sector has grown exponentially in recent years. Hence, it has become essential to outline clear directives and mechanisms to engage with them. Since Value-Added Tax is related to both goods and services, it is an integral for sale of online products. General Director of the FTA, Khalid Ali Al Bustani stated that the VAT is growing in prominence. Hence, they had to define and identify more precise guidelines for the charging and payment of VAT on e-commerce purchases.

As a result, taxable individuals can not charge their customers either 5% or 0% VAT for taxable goods and services. Also, if supplies are not a part of tax laws, they do not come under the purview of taxable supplies. Hence, they will not require the charging and subsequent payment of VAT. Several experts stated that most businesses are unaware of the VAT registration process within the country. This is especially true for those with no office in the UAE. Do reach out to us, at KGRN, in case you have any queries regarding VAT registration or taxation, and our experts will be happy to help you out. 

For enquires call @ +971 45 570 204 / Email Us : support@kgrnaudit.com