In UAE, the E-commerce sector is now a fast-growing industry, and many companies are setting up E-commerce businesses in UAE. This helps the customers to buy goods or avail services very easily and quickly with advanced technologies. It is also important for E-commerce suppliers to understand the special rules of supply and VAT treatment in the UAE. In this blog, we discuss the VAT treatment of the supply of E-commerce services in the UAE.   As per the definition given in the public clarification released by the FTA on E-commerce supplies, “electronic services” mean services which are automatically delivered over the Internet, an electronic network, or an electronic marketplace, including

1. supply of domain names, web hosting and remote maintenance of programs and equipment
2. supply and updating of software
3. supply of images, text, and information provided electronically, such as photos, screensavers, electronic books and other digitized documents and files
4. supply of music, films and games on demand
5. supply of online magazines
6. supply of advertising space on a website and any rights associated with such advertising
7. supply of political, cultural, artistic, sporting, scientific, educational or entertainment broadcasts, including broadcasts of events
8. live streaming via the internet
9. supply of distance learning; and
10. services of an equivalent type which have a similar purpose and function.

  For a supply to fall under the special VAT rules for electronic services, the supply must, therefore, meet two conditions:

1. The service in question must be one of the services mentioned in the above list of services; and
2. The service must be automatically delivered over the Internet, an electronic network, or an electronic marketplace.

  It should be noted that a supply of electronic services may be made through an electronic marketplace rather than directly by the supplier to the recipient. “Electronic marketplace” means a distribution service which is operated by electronic means, including by a website, internet portal, gateway, store, or distribution platform, and meets both of the following conditions.

1. it allows suppliers to make supplies of electronic services to recipients; and
2. the supplies made by the marketplace must be made by electronic means.

  Where a supplier makes a supply of electronic services through an electronic marketplace, and the electronic marketplace is not acting in a capacity as an undisclosed agent, then the supply is treated as made by the principal supplier directly to the recipient of the supply. On the other hand, where the electronic marketplace acts as an undisclosed agent for the principal supplier, there will be two supplies for VAT purposes – a supply by the principal supplier to the marketplace and a supply by the marketplace to the principal recipient.  

Place of supply of electronic services

The place of supply of electronic services determines whether or not the services are subject to VAT in the UAE. Where the place of supply is outside the UAE, no UAE VAT would apply. In contrast, where the place of supply is in the UAE, the supply will fall within the UAE VAT.   Supplies of electronic services (as well as telecommunications services) are subject to a special place of supply rule. Thus, the place of supply of electronic services is:

1. in the UAE, to the extent of the use and enjoyment of the supply in the UAE; and
2. outside the UAE, to the extent of the use and enjoyment of the supply outside the UAE

  The actual use and enjoyment of electronic services should be determined based on where the electronic services are consumed by the recipient, regardless of the place of contract or payment.   The actual use and enjoyment of electronic services should be determined on the basis of where the electronic services are consumed by the recipient, regardless of the place of contract or payment. Since the VAT legislation does not provide any express rule regarding the indicators which should be used to determine the place of use and enjoyment, this determination must be made on a case-by-case basis, and all of the facts of the supply must be considered.   Nevertheless, the following principles may be used as high-level guidance in determining the place of use and enjoyment in various scenarios:

• In the case of an electronic service which is delivered to a physical place, the place of use and enjoyment of that service is that physical place. For example, where electronic services content can be only accessed from a particular physical location, that location will be the place of use and enjoyment.
• In the case of electronic services provided on a portable device, the use and enjoyment may be determined on the basis of the recipient’s location at the time the services are supplied. For example, where music is electronically delivered to a recipient located in the UAE, the place of use and enjoyment will be the UAE.

  For the purpose of determining the location of the recipient, some of the factors which may be indicative of the recipient’s location are:

• the internet protocol (“IP”) address of the device used by the recipient to receive the electronic service
• the country code stored on the SIM card used by the recipient to receive the electronic service;
• The place of residence of the recipient
• The billing address of the recipient and/or
• The bank details used by the recipient for the payment.

  In determining the location of the recipient, the supplier should give priority to the factors which give the most precise information regarding the actual place where the electronic services will be used and enjoyed. For example, if a KSA