The UAE Federal Tax Authority (FTA) has recently published an E-Commerce VAT Guide (the Guide) providing guidance on the VAT treatment of e-commerce sales of goods, the provision of electronic services and the VAT position of agents. This tax alert encompasses key takeaways and potential challenges being faced by UAE companies and prospective solutions.
E-Commerce sales of goods
The Guide explains the place of supply rules and the VAT collection principles regarding the goods sold from, in or to the UAE. Important to note, with reference to the application of the zero VAT rate for goods exported from the UAE, the Guide outlines the requirements stated in the legislation and provides clarification. In relation to the requirement to provide “official evidence”, in most emirates this would require the exporter to retain a certificate issued by the Customs Department, and includes, as an example of this evidence, the exit certificate or a similar document evidencing the export (which nature has not been specified in the Guide).
Where companies are not able to provide the exit certificate or a similar document, the application of the zero VAT rate could be challenged by the FTA. Companies which are not in a position to provide these documents should consider applying for an administrative exception for alternative export documentation.
Electronic supplies of services
Moreover, the Guide sets out further direction about the use and enjoyment rules (where electronic services are deemed to be used and enjoyed) and gives some indications to determine the customer’s location. Electronic services providers are advised to review whether they have correctly applied the use and enjoyment rules and update the internal criteria for determination of customer’s location where required .
Reverse charge mechanism
For both, E-Commerce sales of goods and electronic supply of services, the Guide addresses the application of the reverse charge mechanism. A notable exception applies for non-established companies already registered for VAT in the UAE. The companies are advised to review how these rules were being applied in their businesses and ascertain the impact this clarification may have.
Supplies made through agents
The FTA clarifies the VAT position of agents and the different types of agency arrangements. As an important note, the Guide provides further clarification to the provision stated in the VAT law for agents, specifying that in case of businesses operating through undisclosed agents, two different supplies would need to be distinguished. Companies operating through agents are advised to analyze the different agency models through which they operate and ensure the transaction treatment is in line with the guidance provided.
Legal status of the Guide
In the introduction to the Guide, the FTA specifies that this guide is not intended for legal reference. It is therefore not legally binding for the FTA and is only intended to provide guidance in understanding and applying the VAT legislation. Therefore, in those cases where there are reasonable doubts around the application of the VAT legislation in comparison with the Guide, companies should consider seeking a private clarification from the FTA to ensure correct application of the legislation in particularly complex scenarios.
Should you require specific assistance in understanding the consequences of the Guide for your business, please feel free to reach out to your regular KPMG contact or any of the contacts above.