In UAE e-commerce (electronic sales and purchases) is subject to the standard 5 per cent value added tax (VAT).
As a transitional provision, all goods coming from GCC member countries are subject to VAT until the implementing state provisions becomes operational.
Physical goods and electronic services such as software, e-games, e-subscriptions, mobile phone applications and e-content are subject to specific rules that regulate how VAT applies to them.
(a) Sales & purchase of goods or services through e-commerce within UAE is considered as domestic sales and are subject to standard 5 per cent VAT rate.
(b) Purchase of goods or services from outside UAE, is subject to standard 5 per cent VAT rate.
(i) If recipient of goods or services is in UAE and registered for VAT (as a taxable person), then in this case recipient of goods or services is expected to calculate the standard 5 per cent VAT using reverse charge mechanism, whereby the taxable recipient calculates the due VAT instead of the non-resident supplier.
(ii) If the recipient is the end consumer (i.e. not registered with tax authority for VAT), then standard 5 per cent VAT is charged and paid to the authority by the agent or logistic company. Agent (who supplies/imports) will be responsible for compliance of UAE VAT for all imports on behalf of not registered individual.
Alternatively, the non-resident supplier must register in UAE for VAT purposes, regardless of supply volume.
Compliance on import of goods is aligned and governed through customs automated process and difficult to by-pass the process.
Software, e-games etc
When it comes to services such as software, e-games, e-subscriptions, mobile phone applications and e-content, there are implementation challenges across the world and tax authorities are gauging the trend & increasing surveillance on tax offenders. These are getting controlled through payment gateway monitoring & licensing protocol, e-commerce IP Address monitoring for allowing access to the website in country or not.
- Rajiv Hira is a chartered accountant with RHMC Management Consultants.