Understand what is impact of VAT on E-commerce business in Dubai? And how you can stay compliant to avoid any fines. There is a 5% VAT fee on all online trade of goods and services. E-commerce means purchase of goods and services through an online website or market. The item purchased online is delivered to the customer after the item is imported.
Online sellers are required to register for VAT and understand its implementations on their business activities and how to be prepared for the audit. The VAT calculated for online sales is according to the location of the seller and buyers in the UAE. This article will provide insight on the VAT paid on the items included in e-commerce.
E-Commerce and VAT Registration
E-commerce is the electronic transaction of goods and services, such as buying and selling of goods through online platforms, websites or mobile applications. Based on the location of the buyer, supply and items, the list given below is when the retailer needs to consider the effect of VAT on sales.
- If the supply is made to the customer in the UAE by the resident seller, whether it was a local item or imported
- If the supply is made by the resident of UAE whether it is from within the country or imported, supplied to the buyer outside the UAE
- A non native seller providing goods from within or outside the UAE to a buyer within the UAE
- Delivering goods from inside or outside the UAE by the non-native supplier to a buyer outside the UAE
The list given above must all be considered by the sellers on how VAT will affect the sales of their goods. If the goods are imported from outside the UAE.
What is the Impact of VAT on E-commerce Business in Dubai?
According to the Federal Tax Authority of the UAE, a long as the goods are delivered within the UAE, a 5% VAT will be applied to all the sales made through online platforms. Article 18 of decree law states that it is mandatory for non-resident suppliers to register for tax and supply goods and services and no limit applies to non-residents.
According to this law, if a buyer purchases goods and services from an online platform i,e. E-commerce, social-media, art, games, fashion, music or any other kind of service, the non-resident seller must register for VAT Dubai within the specified time and comply with local tax laws.
How VAT Applies to Online Sales?
The Federal Tax Authority (FTA) has clarified the application of VAT on electronic sales and transactions. The advice also includes details about the VAT status of the tax authorities. Tangible goods and digital resources like games, mobile applications. Applications, e-content are under the control of strict laws that show how VAT is applicable to them.
- Domestic sales are considered e-commerce dealings and 5% VAT applies to them
- The purchase of goods and services outside the UAE are subject the 5% VAT
Other Important Factors of Impact of VAT on E-Commerce
The VAT impact on business through online platforms also include the following
- Supply of Goods and Services. For the VAT to be applicable to the online sales, the supply of goods and services must be subject to tax. The number of online purchases of goods and services that fall under the category of e-commerce are so many, such as watching online movies, reading online books etc.
- Location of Supply. The place of supply when an item is sold is decided when the supply is done. As for the supply of services, the same is decided where the service was provided.
- Place of Buyer and Seller. The VAT Dubai on e-commerce business is also impacted by the residency of the buyer and seller.
- Agency Arrangements. Most of the online shopping or e-commerce sales are done through funding portals. There are many levels of this trade, the first level is the supply of goods from supplier to the middleman and then from the middle man to the customers. The application of VAT Dubai can be different based on the system between the supplier, the middleman and the customer.
Reverse Charge Technique
The buyer is supposed to utilize the reverse charge technique to calculate the standard 5% VAT Dubai. In this method, the taxable buyer calculates the VAT instead of the non-resident seller. The logistics company will pay the 5% VAT to the authorities, if the buyer is not registered for the VAT. The negotiator responsible for import and supplies takes care of VAT laws on imports made on behalf of a non-registered person.
Types of VAT Dubai
According to the types of goods and services, there are three types of VAT.
Standard Value Added Tax
A standard value added tax (VAT) of 5% is applied to the import and supply of goods and services in the UAE. A standard VAT must be paid by all the registered companies in the country.
Zero Rated VAT
Certain goods are considered zero rated meaning VAT does not apply to them, which are water, food, medication. According to the Federal Tax Authority (FTA) the following items are considered zero-rates.
- Export of goods and services outside the country
- Transporting goods and services outside the country
- The land and sea transportation used for transportation of goods and services
- Residential property
- Rescue Aircrafts
- Supply or import of precious metals
- Healthcare services
- Educational services (government or private)
- Property used by charities
- Buildings changed from non-residential to residential
VAT free Supplies
The goods and services included in this list are tax free at the time of purchase or sale. These include,
- Supply of residential buildings
- Trade between different free zones
- Barren land in the country
- Transportation for local passengers
Key Aspects of Impact of VAT in Dubai
E-commerce business in UAE needs to keep the following key aspects of VAT in mind.
- Under certain conditions, VAT grouping is allowed.
- E-commerce businesses that are selling more than the VAT limit must register for value added tax. They should keep accurate records, filing returns regularly, and sending out VAT invoices.
- E-commerce businesses must keep in mind the VAT while making pricing strategy as it can make the customer to believe the price is high.
- If you are importing goods you may need to pay VAT at the point of entry of goods.
- E-commerce business in UAE can help with pricing transparency by including VAT in the prices.
- Companies must keep accurate records, comply with VAT laws to avoid any kind of fines.
- For foreign buyers, there may be VAT on e-commerce goods.
- Under certain conditions, the companies can claim back the paid VAT. For this procedure, the company must provide the necessary documents to the authorities and comply with the laws.
- It is important for online sellers to have an accounting software for calculating the VAT as it will help make the process easy.
Final Note
By understanding what is impact of VAT on e-commerce business in Dubai? Companies can comply with the VAT laws. In order to avoid any kind of fines or penalties, it is important for e-commerce business in UAE to stay up-to-date with the VAT laws and ensure compliance.
If you have any further queries related to VAT contact Al-Riyady. Our expert team is here to help you maintain compliance, avoid fines and save your time. Our other services include accounting & auditing, business valuation, tax consultancy and more.