Definition of E-commerce : E-commerce (also known as “electronic commerce” or sometimes loosely referred to as the “digital economy”) generally refers to supplies of goods and services over the Internet or a similar electronic network, with goods and services being sourced or supplied by electronic means, such as through a computer, phone website or electronic applications.
Types of transactions of E Commerce
- goods purchased through an electronic platform; and
- services supplied by electronic means.
Introduction – Supplies of services
For the purposes of VAT, “electronic services” mean services which are automatically delivered over the internet, an electronic network, or an electronic marketplace, including:
- supply of domain names, web-hosting and remote maintenance of programs and equipment;
- supply and updating of software;
- supply of images, text, and information provided electronically, such as photos, screensavers, electronic books and other digitised documents and files;
- supply of music, films and games on demand;
- supply of online magazines;
- supply of advertising space on a website and any rights associated with such advertising;
- supply of political, cultural, artistic, sporting, scientific, educational or entertainment broadcasts, including broadcasts of events;
- live streaming via the internet;
- supply of distance learning; and
- services of an equivalent type which have a similar purpose and function
For a supply to fall under the special VAT rules for electronic services, the supply must, therefore, meet two conditions:
- the service in question must be one of the services mentioned in the above list of services; and
- the service must be automatically delivered over the internet, an electronic network, or an electronic marketplace.
Hence, it means any service which is not included in the above list , it will not be an “electronic Service” even if the service is supplied using the internet or an electronic network. For e.g , a supply of legal or financial advice , transport services etc. will not constitute an electronic service simply because the parties use the internet to communicate with each other.
The second requirement means that an electronic service should be automatically delivered over the internet, an electronic network, or an electronic marketplace with minimal or no human intervention.
Place of supply of electronic services
Thus, the place of supply of electronic services is:
- in the UAE, to the extent of the use and enjoyment of the supply in the UAE; and
- outside the UAE, to the extent of the use and enjoyment of the supply outside the UAE.
Imposition of VAT:
The place of supply of electronic services determines whether or not the services are subject to VAT in the UAE.
1)Where the place of supply is outside the UAE, no UAE VAT would apply.
2) In contrast, where the place of supply is in the UAE, the supply will fall within the UAE VAT net.
Accounting for VAT:
- The responsibility for accounting for VAT on any taxable supply of electronic services in the UAE typically lies with the taxable supplier of those electronic services, unless the reverse charge mechanism applies.
- Cross-border supplies into UAE (i.e Import of services into the UAE): Reverse Charge mechanism applies where the supplier does not have a place of residence in the UAE and the recipient is either registered or required to register for VAT in UAE. And here in this case the recipient, rather than the non resident supplier , must account for VAT to the FTA at the applicable VAT rate.
Summary: VAT treatment of electronic services
| Residency status of supplier | Place of use and enjoyment | Registration status of recipient | VAT on supply | VATaccounted by |
| UAE | UAE | Any | 5% or 0% ifspecifically zero-rated | Supplier* |
| UAE | Outside UAE | Any | No | N/A |
| Outside UAE | UAE | Not registered | 5% or 0% ifspecifically zero-rated | Supplier |
| Outside UAE | UAE | Registered | 5% or 0% specificallyzero-rated | Recipient |
| Outside UAE | Outside UAE | Any | No | N/A |
Note:* The UAE-resident supplier will only be responsible for accounting for VAT on the supply where it is a taxable person in the UAE.