UAE – Criteria And Conditions For Electronic Commerce For The Purpose Of The Amendment To Emirates’ Reporting Of Vat

Brief

The Ministerial Decision No. 26 of 2023 has been issued by the Minister of State for Financial Affairs, outlining the criteria and conditions for electronic commerce aimed at maintaining records of the supplies made. Furthermore, the Federal Tax Authority (FTA) of UAE has released Public Clarification VATP033, which provides clarity on the amendment to Emirates’ VAT reporting. Below-mentioned is the transcript issued by the Ministry of Finance, UAE.

Criteria and Conditions for Electronic Commerce

According to the provisions of Clause 5 of Article 72 of the UAE VAT Executive Regulation, the Ministerial Decision No. 26 of 2023 outlines the criteria and conditions for electronic commerce. These provisions were introduced following the Cabinet Decision No. 99 of 2022, which amended the provisions of Articles 3 and 72 of the UAE VAT Executive Regulations. As per Article 72, taxable persons who engage in taxable supplies through electronic commerce are required to maintain records of the transactions as evidence of the Emirate where the supply is received. For further information, please refer to our earlier notification regarding the amended Article 72.

The Decision specifies that the supply of goods and services will be classified as an electronic commerce supply via an Electronic Commerce Medium only if all of the following criteria and conditions are fulfilled:

Criteria and Conditions for Electronic Commerce

• The goods and services are listed and advertised on an Electronic Commerce Medium;
• The goods and services are ordered through the Electronic Commerce Medium, regardless of whether the payment is made online or not;
• In case of a supply of goods, the goods are delivered to a location specified by the customer whereby this location is not owned by the supplier nor operated by that supplier.
• In the case of a supply of services, the services are provided, or the right to receive the services is granted to the customer with minimal or no human intervention.

Public Clarification VATP033

On 24 February 2023, the FTA released Public Clarification VATP033, which aims to clarify that the Electronic Commerce Medium encompasses a wide range of concepts, including stores in the metaverse, smart kiosks, robotic devices, and so on. The clarification also includes specific examples and explanations related to the criteria and conditions stated in Article 3 of the Decision. Additionally, the document provides guidance on the factors that should be considered while determining the Emirate in which the supply of goods or services must be reported.

Public Clarification VATP033

• The Emirate in which the services are received shall be determined in accordance with the relevant factors (FTA will accept the place of residence of the customer taking precedence over, for example, billing address or IP address).
• For the supply of goods, the Emirate in which the goods are received shall be determined by the location specified by the customer, taking precedence over the place of residence, billing address, or IP address.

Undisclosed Agent

The Public Clarification VATP033 clarified that when the Electronic Commerce Medium operates as an undisclosed agent, the supplier will be considered as supplying the goods or services to the Electronic Commerce Medium, and the Electronic Commerce Medium will be considered as supplying the same goods or services to the end customer. As a result, the Electronic Commerce Medium’s operator will be responsible for determining the value of taxable supplies made by them through e-commerce, taking into account the supply to the end customer, in terms of the VAT liability.

Key Takeaways

• Taxpayers supplying goods and services through Electronic Commerce Medium should assess whether they are subject to the new Emirates’ reporting mechanism for VAT.
• Taxable persons making taxable supplies through Electronic Commerce Medium and meeting the AED 100 million thresholds are now required to assess changes related to record-keeping to prove the Emirate in which the supply is received and to report the same in the VAT return.
• The new Emirates’ reporting mechanism for VAT will necessitate changes to systems and data collection.
• Additional requirements will be introduced to comply with the legislation.

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