Starting from July 1, a significant change in the way e-commerce businesses book sales will impact their VAT compliance requirements in the UAE. The Federal Tax Authority (FTA) has announced that e-commerce sales must now include the emirate where the order was placed and the goods were delivered in their VAT returns. However, this requirement only applies to e-commerce businesses that generate Dh100 million or more in a calendar year.
Traditionally, sales reporting for such businesses was based on the emirate where the e-commerce establishment was located. But starting in July, e-commerce suppliers will be obligated to report on orders based on the emirate where the goods or services are received by the customer. This shift follows the principle of distinguishing the “location of the supplier” versus the “location of the customer.”
The FTA has been conducting seminars to inform e-commerce businesses about this change and provide guidance on compliance. According to Khalid Ali Al Bustani, the Director-General of the FTA, clear mechanisms have been outlined to facilitate the supply of goods and services through electronic means, supporting the growth of this crucial sector and ensuring accurate tax compliance and reporting for e-commerce transactions.
To adhere to the new requirements, e-commerce suppliers need to declare the emirate of delivery in Box 1 of their VAT Return, which can be done via the EmaraTax digital services platform. It is also essential for suppliers to maintain relevant supporting evidence regarding the location of the customer for each supply.
Pankaj S. Jain, the Managing Director at AskPankaj Tax Advisors, highlights that e-commerce operators holding inventory in the UAE for future supplies may be considered as conducting business within the country. Additionally, the valuation of supplies becomes a significant issue depending on the nature of discount schemes offered by online sellers, as it can significantly impact the VAT implications.
For UAE-based e-commerce operators supplying to overseas markets, careful attention must be paid to export documentation and compliance proof. Overseas e-commerce suppliers delivering goods into the UAE are also required to be VAT-compliant. Even minimal income earned by non-resident suppliers from such supplies will trigger VAT registration compliance. It is essential for e-commerce operators to verify the “place of supply” and the VAT status of UAE customers. For instance, many software and IT companies based in Ireland have registered under the UAE VAT system.
The UAE boasts one of the fastest-growing e-commerce markets in the region, supported by advanced digital infrastructure, a growth-friendly legislative environment, and the FTA’s efforts to ensure accurate tax compliance in the sector. With the new requirements in place, e-commerce businesses will need to adapt their sales reporting practices to align with the emirate where goods are delivered, fostering transparency and efficient tax compliance in the e-commerce sector.
