How is VAT implemented on Electronics Services in the UAE?
What are electronic services?
As per Economic Regulations' Article 23 of Cabinet Decision No.52, 2017, "electronic services" means those services which are rendered automatically via the internet or any other electronic network or any other marketplace. To be more precise, it explains that those services which are available through any automated system without any human involvement or minimal human involvement, which are received or delivered online and not in any physical form, and which are acquired from any electronic market place, which may include any website, app, or other platform which operates electronically, If any service available doesn't include all the three conditions stated in the definition, then it won't be qualified to be identified as an electronic service.
List of services that are considered as electronic services as per article 23:
- Supply of mobile applications
- Supply of games
- Supply of software and its updating
- Supply of cloud storage services
- Supply or downloading of online movies or music
- Supply of magazines online
- Providing space for advertising on the internet or any other electronic platform
- Supply of any broadcast programs
- Supply of e-books, documents, information, or any educational materials, etc.
- Live Broadcast
The above stated are some of the services which are considered electronic services under the economic regulations.
You can Also Read: VAT Guide Specifying Major Obligations for Car Dealers and Service Centres
Implementation of VAT on electronic services
Advancements in technology have resulted in the emergence of a new section of business that is conducted over the internet, and the procurement and delivery of such services are also performed online. The enhancement of such technology not only enables the people around the state to access it, but also individuals all over the globe can access such services.
Implementation of VAT on electronic services mainly depends on the place of supply. The implementation of such a basis is explained below.
The place of supply will be ascertained accordingly as follows:
- Within UAE up to the extent used or enjoyed thereof within the state
- Outside UAE up to the extent used or enjoyed thereof outside the state
- If the service is rendered to any physical place, then such a place where it is enjoyed or used is considered the place of supply.
- If the services are provided to any electronic devices, then the use and enjoyment will be ascertained based on the recipient's location. While ascertaining the place, the following must be noted:
- IP address on which the service is received
- The country of the sim card receiving the service
- Information related to the place of residence
- Bank account details
If the electronic services are provided within the state, then these are subject to normal VAT regulations that are applied to other services, i.e., they will be under the scope of VAT services in dubai on electronics. VAT will be charged at the standard rate of 5% unless the supply of such a service falls under the category of Article 45 of VAT law, which considers the service zero-rated.
When can electronic services be zero-rated?
The application of zero rates on electronic services is one of the most complex portions, as the FTA has not specifically given an explanation relating to this concept. But as per general VAT law, when services are supplied to a non-resident person in the UAE, then such services are zero-rated. In the case of electronic services, zero rates will apply in similar situations where the buyer of the service is situated outside but uses it within the state, still qualify for zero rates of VAT as he is a non-resident and bought the service outside the state.
The firms providing electronic services must keep in mind to carefully understand the application of VAT on the electronic service they render as it is one of the most debated and complex tax sectors. The firms that are new to that market must try to approach a tax consultant to get expert advice on tax-related matters and to avoid any mishaps or mistakes that may attract huge penalties and fines in the future.
How can CDA guide firms in VAT-related matters?
A firm struggling with the VAT implementation and its return filing can approach CDA without any hesitation to acquire experts' advice regarding the application of VAT and compliance with its rules and regulations. CDA, with its team that is experienced in tax consultancy services in dubai , always looks forward to assisting its clients in a personalised manner. CDA provides a one-stop solution for all the accounting and auditing needs of its clients. To learn more about CDA, contact us now.