E-commerce in the UAE has rapidly grown in the past few years and has transformed the business landscape globally. With tech savvy customers, Government support and strong internet connectivity, UAE has become a hub for e-commerce businesses.
Amid these developments, regulatory clarity is essential. The UAE ministry has issued Ministerial Decision No 26 of 2023 and a Public Clarification VATP033, introducing new rules for e-commerce.
E-Commerce and its place of supply:
E-commerce refers to the buying and selling of goods or services through digital platforms such as websites, mobile applications, or online marketplaces.
For e-commerce, the place of supply is linked to where the customer receives the goods or services, not just where the seller is registered.
The article 72 of the Executive Regulation requires that the taxable persons making taxable supplies through electronic commerce to keep records of the transaction to prove the Emirate in which the supply is received.
To understand how these amendments fit into the broader UAE VAT framework, it is important to first consider the fundamental principles of value-added tax in the UAE.
Amendments through Ministerial decision No 26 of 2023 and VATP033:
Criteria and Conditions for Electronic Commerce:
The Ministerial decision No 26 of 2023 introduced the criteria and conditions for electronic commerce. On the other hand, the Public Clarification VATP033 provides instances and explains each of the conditions.
A supply of goods or services will be considered an e-commerce supply made via an electronic commerce medium if all of the following conditions are met:
- Listed Online: The goods or services are listed or advertised on an electronic commerce medium.
This condition is met if the customer is given sufficient information that helps them to make an informed decision regarding the product’s purchase.
- Ordered Online: The goods or services are ordered through that electronic commerce medium, regardless of whether payment is made online or offline.
Regardless of the payment is made online or not, if the order is to be concluded and completed within that medium, then this condition shall be met.
- Delivery of Goods: For goods, delivery must be to a location specified by the customer that is not owned or operated by the supplier.
The delivery of the goods must be the location specified by the customer. For example, if the customer selects to collect the delivery of the goods from any of the supplier’s location or warehouse, then it will not be treated as a supply through e-commerce.
- Provision of Services: For services, they must be provided (or the right to receive them granted) with minimal or no human intervention.
For example, if a training is provided by a human lecturer through livestream then it shall not be a supply through e-commerce. Conversely, if the training had automatic broadcasting of the pre-recorded training course then the condition will be met.
Electronic Commerce Medium:
Electronic commerce medium means a website, portal, gateway, interface, platform, marketplace, programme interface, or any similar application that helps sell goods or services, including electronic means, electronic platforms, social media stores, and electronic applications.
Qualifying Registrants:
Taxable persons supplying goods and services through electronic commerce which exceed AED 100 million over a calendar year are referred to as “Qualifying Registrants”.
From 1 July 2023, Qualifying Registrants are required to report supplies made through e-commerce in box 1 of the VAT Return based on the Emirate in which the supplies of the goods or services are received by the customer and keep the relevant supporting evidence.
Before this change, the VAT reporting for e-commerce supplies was based on the location of the supplier’s establishment. After this amendment, the Qualifying Registrants must now report the supplies based on the Emirate where the goods or services are received.
Undisclosed agent:
The Federal Tax Authority’s Public Clarification explains how VAT liability works when an electronic commerce medium, such as a marketplace or platform, acts as an undisclosed agent. In this case, the supplier is treated as selling the goods or services to the platform, and the platform is then considered to be selling those goods or services to the end customer.
This means the operator of the electronic commerce medium must account for VAT on the supply made to the customer and include it when calculating the value of its taxable supplies through e-commerce.
Incidental Supplies in E-Commerce:
Certain activities that support online transactions such as payment systems, logistics for delivering goods, or other platform services, are considered part of an e-commerce supply of goods, provided these services are offered by the same supplier who is selling the goods.
In other words, if a business provides both the product and the supporting services (like delivery or payment processing), these are treated as one combined supply.
These amendments also impact VAT return reporting requirements in the UAE, particularly for businesses classified as qualifying registrants under VATP033.
Conclusion:
E-commerce VAT provisions and accounting rules can be complex and challenging for businesses to interpret and apply correctly. To navigate these requirements smoothly, consult BCL Globiz today and learn how these changes affect your business operations info@bcl.ae.
Frequently Asked Questions (FAQs):
- How does this affect e-commerce businesses?
Businesses must now report VAT based on the Emirate where the customer receives the goods or services, not just where the seller is registered. They also need to keep detailed Emirate-level records.
- What qualifies as an e-commerce supply?
Goods or services listed and ordered through an online medium (like a website, app, or marketplace), delivered to a customer’s chosen location, or services provided with minimal human intervention.
- Does this apply to free zone businesses?
Yes. The rules apply to all e-commerce supplies in the UAE, whether the business is based in a free zone or on the mainland.
- Why was this change introduced?
To ensure fair VAT distribution among Emirates, provide clarity for businesses, and strengthen compliance in the UAE’s fast-growing digital economy.
- What is the AED 100 million threshold mentioned in VATP033?
If a business’s annual e-commerce supplies exceed AED 100 million, it is considered a “Qualifying Registrant” and must report VAT per Emirate in its VAT return.
- Do these rules apply if payment is made offline?
Yes. As long as the order is placed through an electronic commerce medium, it qualifies as an e-commerce supply, regardless of whether payment is online or offline
