Application of VAT On Digital Marketing Services in Dubai
Dubai is the largest business hub that attracts various businessmen and entrepreneurs from all over the globe and is also known for providing unlimited opportunities for digital marketing services. Identifying this opportunity, many firms have established, that focus on providing digital marketing services to their clients. Digital marketing has become the core of a business due to the fast transition of traditional businesses into digital form and the regressive competition that each firm faces in the market. Digital marketing has provided firms with various platforms through which they could spread information about their goods and services to every nook and corner of the globe at a very favorable cost. The pandemic has also boosted the demand for digital marketing services.
Digital marketing services are also subject to a standard VAT rate of 5%. All the marketing companies in Dubai must ensure that they are well aware of the VAT compliance regulations and they must not fail to stay complied with the regulations. In the case of application of VAT on the digital marketing services, it always depends on the factors such as the nature of the services supplied, the place of services provided, and the entities. Internet and digital marketing services are on the same page as without the internet digital marketing activities cannot be performed. Through digital marketing services, the buyer and seller interact virtually. It may include the following services, software development, and installation, games, cloud storage, online movie and entertainment platforms, etc.
Some highlighting points to be kept in mind
Digital marketing services may include search engine optimization, e-mail marketing, social media marketing such as via Instagram, LinkedIn, etc., SEO, and many more.
The computation of VAT may differ depending on the location of the service provider, target market, and the clients.
Where a marketing firm that provides offline ad-services VAT will be charged based on the location where the advertisement is posted.
Where a marketing firm renders online ad services, VAT will be charged on basis of meeting the needs of the marketing firm as per the provisions of VAT law.
The firms rendering digital marketing services must make a list of all the online advertising and digital marketing services that are VAT chargeable and they must identify the location of the client and the target audience for each service included in the list, these two steps must be followed to stay complied with VAT provision of digital marketing services.
Read more: Why VAT Consultancy Services required for your business in UAE?
Impact of VAT on firms providing digital marketing services in different situations
Let us understand the first scenario with the help of an example, consider a marketing company with the name ABC limited in UAE and it has decided to provide marketing and advertising services to a client based in UAE, but the target audience of the said marketing service is a location outside UAE i.e., America. Hence it is outside the provisions of VAT and it won't be taxable.
So, from the above example, it is evident that when the consumption of the service i.e.,the target audience is situated outside UAE then it won't be a taxable service, even though it is rendered to the client situated in UAE.
Let us take the same example in the second situation. Here ABC limited company based in UAE provides the marketing and advertising services to the client who is situated in America for the target audience in America. Hence both the clients and the place of supply are outside UAE so the services won't be taxable.
From the example, we understand that when the clients and the place of supply of the services are outside then it won't be charged the standard rate of VAT.
Let us understand the third situation with the help of the same example again. In this situation, the firm ABC limited provides or renders the marketing service to a client situated in America for the target audience in UAE, here the place of consumption is UAE and the client doesn't have any fixed establishment in UAE so it will be considered as export of services hence the VAT will be charged at 0% as it is a zero-rated taxable supply.
So, when the place of supply of the services in UAE and it is rendered to the client who has no fixed establishment in UAE, then it will be considered as export of services which will be taxable at zero rates of VAT.
In the last situation according to the example, ABC limited renders services to the client based in UAE for the target audience in UAE i.e., the place of consumption is UAE. So here all the three parties are situated in UAE and the services are also provided to the client based in UAE, hence the service will be charged at the standard rate of VAT (5%).
When the service provider, the client, and the place of consumption of the service is in UAE then the VAT @ 5% must be charged.
Business firms must identify the place of consumption of the services and the place of establishment of the clients before charging the VAT. With the help of the above example, the firms can easily understand the application of VAT services in Dubai in different scenarios.
Read More: How to Amend VAT Registration in UAE
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