People across the globe are making purchases from online businesses due to their accessibility and convenience. One can simply check all of their offerings on the internet and there is no need to get in a car to drive to stores just to see them. But, e-commerce businesses in UAE are having a difficult time tracking finances. They’re to make sure that they’re paying their tax dues to the Federal Tax Authority. The standard VAT rate of five percent is to be applied on relevant goods and services and taxes collected from consumers are to be remitted to the local tax authority.
If you’re running an e-commerce business in UAE, it’s your job in making sure that you’re filing your VAT returns regularly and on time. Don’t wait for tax officers to catch you. In order to help you ensure full compliance to relevant VAT regulations in UAE, here are the kinds of online businesses that are liable to pay VAT:
Online merchants are basically legitimate business owners providing goods and/or services online. They make their own products, perform their own services without the need of a third party, as well as run their own websites which double as virtual stores.
Online intermediaries are middlemen or third parties which connect business owners to their clients. They deliver goods or services to customers without having to take ownership of products or services that are given. They only get commissions for each transaction. One great example is Amazon as it’s selling different kinds of items from different sellers.
An online intermediary is marketing its offerings in UAE and receiving payments from customers. It is, therefore, required in paying VAT as transactions of the online business are taxable as per the local taxation policies.
The UAE FTA also grouped online businesses according to the kinds of transactions they’re making. This is for it to be easier in verifying what’s considered as normal business activity that’s liable for VAT in UAE, and they are as follows:
- Business to Business or B2B – A B2B targets and sells goods and/or services to another business. A small enterprise, for instance, will outsource blog management and web development needs onto a marketing agency. A client tends to pay with credit. A business relationship is formed with transactions that are often long-term.
- Business to Consumer or B2C – A B2C allows a customer or client to make an order and pay to the business entity directly and without the need of a middleman. A company who earns an income through transactions such as this implement strict security measures as their consumer data are on its website.
- Consumer to Consumer or C2C – An intermediary allows a customer to transact with another customer. Customers usually pay a certain fee in order to utilize the website of a business in selling their products. Upon payment, they then acquire visibility so other customers can purchase their offerings.
Social media influencers
If a social media influencer is making more than the mandatory VAT registration threshold in UAE, then it has to undergo UAE VAT registration. The income generated from a social media influencer or freelance professional’s transactions will then be taxable. Income usually comes from ad networks, paid subscriptions, and sponsored posts. Once registered for VAT in UAE, they are to issue tax invoices to paid subscribers or agencies and charge the standard VAT rate of five percent on services. They, in turn, will be eligible in claiming VAT that is paid on purchases incurred for business purposes or for providing online services.
VAT is levied when UAE is the place of supply. The place of supply will be where the supply was used or enjoyed. Since social media influencers are followed by people from different countries, it’s quite hard to ascertain place of supply with the purpose of levying VAT. This is why it is important to consult with a regulated tax agent in Dubai to help set up a system for proper verification and documentation of transactions, regardless of whether they’re eligible for VAT or not.
Do I need VAT registration in UAE?
In the UAE, all businesses, online or offline, with annual taxable supplies of more than Dhs 375,000 are required in registering for VAT. The taxable turnover of a business is the value of all the taxable sales it makes throughout a fiscal year. A sale that is exempt from VAT does not count towards the taxable turnover of the business.
It is possible to register your business for VAT voluntarily if it has annual taxable supplies of over Dhs 187,500. One of the main reasons why a lot of online entrepreneurs undergo voluntary VAT registration in UAE is because they can reclaim VAT paid on goods and services which are purchased by them to run their businesses. To know more, call VAT Registration UAE!