The Electronics Sector’s Imposition of VAT
Whether or not electronic services are liable for VAT in the United Arab Emirates depends on the place of supply. The services will be subject to VAT on electronics if it is determined that the place of supply is in the United Arab Emirates.
In the UAE, 5% VAT is imposed on the supply of taxable supplies. However, if the supply fits into one of the categories listed in Article 45 of the VAT Law—which deals with situations in which the zero VAT rate is applicable—it can be subject to the zero VAT rate.
Electronic Services: What Are They?
According to the Executive Regulations for VAT (the “Executive Regulations”), the phrase “Electronic Services” refers to any services that are automatically offered over the Internet, an electronic network, or an electronic marketplace. These services include:
Supplying names, Digital Marketing and hosting websites, and performing remote maintenance on software and hardware;
Delivering and maintaining the program; delivering screensavers, electronic books, images, texts, data, papers, and digital files;
Availability of games, films, and music;
Internet-based magazine distribution;
Provision of online advertising space;
Providing broadcast content on politics, science, culture, art, sports, education, entertainment, and live events;
Live webcasting; offering services for remote learning;
Comparable services that provide the same purpose.
If the following conditions are satisfied, the provision will only be regarded as an electronic service:
Should the service being evaluated be any of the ones mentioned above?
In which case little or no human involvement is required and the service is delivered automatically over the Internet, network, or electronic marketplace.
Electronic services may be supplied through an online electronic market. If the following conditions are satisfied, an electronic market place is defined by the Executive Regulations as a distribution service that uses electronic means, such as a website, an online portal, a store, or a distribution platform: Electronic services may be provided by suppliers to recipients as long as the supplies are conducted electronically.
Keeping track of VAT
Unless the reverse charge technique is used, the supplier of electronic services in the UAE is typically responsible for accounting for VAT.
The reverse-charge mechanism will apply to the import of electronic services into the United Arab Emirates (also known as cross-border supply) if the recipient is required to register for VAT in the UAE or is registered but the supplier does not reside there. When a supply is subject to the reverse-charge method, the taxable recipient is required to account for the appropriate VAT rather than the non-resident supplier.
Conclusion: According to Dubai VAT Law, the place of supply for the telecommunications and electronic services mentioned above shall be in the state to the extent that the supply is used and enjoyed within the state, and outside the state to the extent that the supply is used and enjoyed outside the state. Regardless of the location of the contract or the mode of payment, the real use and pleasure of all electronic and telecommunications services shall occur where these services are used.
