VAT for E-commerce in UAE
Jay Krishnan, Partner
The citizens and business owners in the UAE are still processing the thought of being a VAT payer; it is applicable to every entity which has a minimum turnover of AED 375,000 per annum. The question of whether to pay VAT arises among the non-resident companies registered under the e-commerce online platforms as well.
A company which is listed in the e-commerce online platform that sells goods in the UAE can be enlisted as VAT payer. In order to sell their products in the country a company (seller) should follow certain procedures:
- The seller should deliver its goods at the warehouses provided by the e-commerce companies.
- The e-commerce companies should hold the stock in its warehouses on behalf of nonresident seller.
- When a UAE based customer places an order, it is the e-commerce company that dispatches the goods (anywhere within the country).
- The e-commerce company will send the money to the seller after deducting their applicable commissions.
- It is the seller who decides the price of the goods that is being sold through the platform.
- The e-commerce company does not take responsibility of the goods or hold ownership and will not issue an invoice on behalf of the seller.
- The customers who purchase goods might not be registered for VAT in the UAE.
There are certain laws to be considered to register the sellers for VAT. Below Articles need to be studied and applied where a non-resident company/individual which sells their products through an agent and can be enlisted as a VAT payer in UAE.
- Article 9 of the Decree-Law provides the rules for VAT treatment of supplies made through agents. Specifically:
- The Supply of Goods and Services through an agent acting in the name of and on behalf of a principal is considered to be a supply by the principal and for his benefit.
- The Supply of Goods and Services through an agent acting in his name is considered to be a direct supply by the agent and for his benefit.
- Article 13 of the Decree-Law sets out the conditions that obligate persons to register for VAT.
- Article 13(2) of the Decree-Law determines that persons, who do not have a place of residence in the UAE, may be required to register for VAT if they makes any taxable supplies in the UAE, unless there is another person in the UAE who is responsible for accounting for VAT on such activities. As such, for non-resident suppliers, the registration threshold is, in effect, nil.
- Article 27(1) of the Decree-Law determines that the place of supply of goods will be the UAE if the supply is made in the UAE.
Accordingly, a non-resident company that sells their products through an e-commerce online platform in the UAE should register for VAT. The e-commerce company only acts as an agent in dispatching the products and does not have the ownership of the goods. As most of the customers who purchase through such online platforms are not registered for VAT:
- The seller should pay VAT and
- The seller should also charge the customers on the taxable supplies.
Impact of Recent UAE VAT Amendment on Companies dealing in Hydrocarbons
In place of any hydrocarbons, the amendment clarifies that the reverse charge mechanism will only apply to Pure hydrocarbons.
UAE VAT Law Amendment Effective from 01.01.2023
On September 26, 2022, President His Highness Sheikh Mohamed bin Zayed Al Nahyan issued the Federal Decree-Law No.18 of 2022,
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