New UAE VAT Rule: Ecommerce Businesses Must Specify Emirate Where Order Is Delivered
Starting July 1, 2023 ecommerce businesses in the United Arab Emirates (UAE) must disclose the emirate in which an order was placed and delivered. This disclosure will be necessary for VAT compliance. The Federal Tax Authority has stipulated that ecommerce-generated sales worth Dh100m or more in a calendar year must enter in their VAT returns the exact location of their customers, whether it is Dubai, Abu Dhabi, or any of the other emirates.
Pankaj S. Jain, Managing Director at AskPankaj Tax Advisors elaborated further that “starting July, ecommerce suppliers are required to report on orders in the emirate in which the supplies of the goods or services are received by the customer. It is a typical ‘location of supplier’ vs ‘location of customer’ principle.”
The FTA has already held seminars to inform ecommerce businesses about the new VAT rule, which should be easy to follow. Director-General of FTA Khalid Ali Al Bustani has indicated that “clear mechanisms have been outlined for the supply of goods and services via electronic means,” further stating that this will contribute to both supporting the growth of the ecommerce sector and ensuring accurate tax compliance and reporting for ecommerce supplies.
To comply with the rule, the emirate in which the supplies of goods are delivered should be declared in Box 1 of the VAT Return, which can be done on the EmaraTax digital services platform. Ecommerce suppliers should also keep appropriate supporting evidence that details the location of the customer receiving the supply.
Aside from this, Jain advises ecommerce operators maintaining inventory in the UAE for future supplies to also be careful since it may be considered as conducting a business, which would be subject to VAT. In terms of the valuation of supplies, the VAT implication could drastically change in the presence of discount schemes, and if the discounts are not funded by the supplier, the VAT amount due would include the subsidy or price support received.
Overseas-based ecommerce suppliers must also comply with the VAT rule if they make deliveries into the UAE. This implies that even an income of Dh1 earned by a non-resident supplier from such deliveries will trigger VAT registration compliance. Jain recommends that ecommerce operators verify the ‘place of supply’ and the VAT status of UAE customers, as this could significantly affect their VAT compliance.