UAE VAT: REVISED EMIRATES’ REPORTING OF E-COMMERCE MEDIUM SUPPLY [VATP033]

The Value Added Tax (VAT) law requires that tax revenues and administrative penalties be shared between the Federal and Emirates Governments. In continuation of that, it has been mentioned in the VAT returns user’s guide that was issued in February 2018 for businesses with fixed establishments in the UAE their standard rated supply should be reported in the Emirate where the fixed establishment most closely connected to the supply is located. For non-established businesses, the supply should be reported in the Emirate where the supply is received.

On 26 September 2022, the President of the UAE, H.H. Sheikh Mohamed Bin Zayed Al Nahyan, issued the Federal Decree-Law No.18 of 2022, amending some provisions of the Federal Decree-Law No. 8 of 2017 on the VAT Law. The related VAT regulations were revised, and Cabinet Decision No. 99 of 2022 was Issued on 21 October 2022. The revised VAT law and related regulations are effective from 01 January 2023.

The amended VAT regulations require certain taxable persons to report and keep records of electronic commerce (e-commerce) transactions according to the Emirate in which supplies are received. Following that, Ministerial Decision No. 26 of 2023 on the criteria and conditions for electronic commerce for the purposes of keeping records of the supplies made was Issued on 22 February 2023—later on, Public Clarification no. VATP033 was issued where Emirates-wise special reporting requirements have been discussed in detail.

Taxable persons supplying goods and services through e-commerce where the value of the supply exceeds AED 100 million over a calendar year are called “qualifying registrants”, and qualifying registrants are required to report standard-rated supplies made through an e-commerce platform based on the Emirate in which the supplies are received.

As a general rule, standard-rated supply should be reported in the Emirate in which the taxable person’s fixed establishment most closely related to the supply is located. Where the taxable person has not any fixed establishment in the UAE, the supply should be reported in the Emirate in which the supplier has a place of establishment in the UAE. Where the supplier does not have a fixed establishment and place of establishment in the UAE, standard-rated supply should be reported in the Emirate where the supply is received. As a special rule, the qualifying registrant should report the e-commerce transactions according to the Emirate in which supplies are received.

Where the qualifying registrants have mixed supplies, they must prepare a declaration with a split between e-commerce and non-e-commerce supplies for those Emirates where a mix of supplies exists. This declaration should be submitted along with the VAT return. The amount on the VAT return under box 1 will be an aggregate amount of the e-commerce and non-e-commerce activities for each Emirate.

Electronic commerce means selling goods or services through electronic means, an electronic platform, a store in social media, or electronic applications like selling goods or services through a website, portal, gateway, interface, platform, marketplace, programme interface, or similar application (hereinafter referred as e-commerce medium) which facilitates the sale of goods or services where all following conditions are fulfilled:

• The Goods and Services are listed or advertised on the e-commerce medium, allowing sufficient information to take an informed decision.
• The goods and services are ordered through the e-commerce medium, and payment can be made out of the e-commerce medium.
• In the case of a supply of goods, the goods are delivered to a location specified by the customer, whereby the location is not owned by the supplier nor operated by that supplier.
• In the case of a supply of services, the services are provided, or the right to receive the services is granted to the customer with minimal or no human intervention.

Where the e-commerce medium operates as an undisclosed agent (does not disclose the name of the supplier of the relevant goods or services), the supplier shall be regarded as supplying the goods or services to the e-commerce medium, and the e-commerce medium shall be regarded as supplying the same goods or services to the customer. The e-commerce medium operator shall account for the VAT unless the supply is exempt or out of the scope and charge output tax to the end user if the supply is standard-rated or zero-rated.

Ancillary Activities that support online transactions, such as payment systems, logistics for the delivery of goods and other similar platform services, fall within the scope of an e-commerce supply of goods if provided by the same supplier.

Once a registrant has been classified as a qualifying registrant, they must abide by the reporting requirements. The first assessment year is the calendar year 2022 (1 January 2022 to 31 December 2022). Where the Dhs 100 million thresholds is crossed in the calendar year 2022, the qualifying registrants must notify the Federal Tax Authority (FTA) for eighteen months starting from the first tax period commencing on or after 1 July 2023. Where the qualifying registrant crosses the threshold in any subsequent calendar year, then qualifying registrants are required to report for two years starting from the beginning of the first tax period of the calendar year commencing after the date on which the registrant has exceeded Dhs 100 million thresholds.

At the end of the reporting period, eighteen months or two years as the case may be, the qualifying registrants must re-assess whether it exceeded the threshold for the calendar year that recently ended and notify FTA if it needs to continue applying the special reporting mechanism.

Potential qualifying registrants should assess their revenue in each calendar year and meet the reporting requirements accordingly.

Mahar Afzal is a CEO at Kress Cooper: Tax I Audit I Advisory I Accounting I Business Setup firm. The above is not his official but a personal opinion. For any queries/clarifications, please feel free to contact him at mahar@kresscooper.com.