We significantly are focusing on Value Added Tax (VAT) in the United Arab Emirates (UAE) with technologies thriving E-commerce businesses in the Middle East region. Today, our discussion will revolve around the taxation obligations that E-commerce operators must adhere to in the UAE. Furthermore, we will explore the role of Tally Prime UAE facilitating VAT compliance.

Tally Prime is a fully VAT-compliant accounting software, moving with 30 years of experience in developing software for diverse tax regimes. If you’re considering the automation of your business operations, Tally Prime simplifies this process. It enables you to start recording transactions and generate invoices within minutes of installation. It also empowers you to produce your VAT return, providing a comprehensive overview of tax calculations and analysis through the Tax Calculation report. This report details all transactions, the total amount of tax payable, and any refundable amounts, if applicable.

VAT on Online Sales

The application of VAT to E-commerce sales in the UAE hinges on the location of the supplier and the recipient. A 5% VAT rate is imposed on online sales within the UAE.

In the context of E-commerce, a goods supply involves the purchase of products via an electronic platform, such as a website or an online marketplace. Subsequently, the recipient receives these goods.

The nature of the supply can take one of the following forms based on the location of the supplier, recipient, and the origin of the goods:

  • A supply by a resident supplier to a recipient within the UAE, with goods originating from either inside or outside the UAE.
  • A supply by a resident supplier to a recipient outside the UAE, with goods originating from either inside or outside the UAE.
  • A supply by a non-resident supplier to a recipient within the UAE, with goods originating from either inside or outside the UAE.
  • A supply by a non-resident supplier to a recipient outside the UAE, with goods originating from either inside or outside the UAE.

In each of these scenarios, the supplier must consider the VAT implications of the goods’ sale. It should be particularly when the goods are physically imported into the UAE from outside the country.

Impact of VAT on E-commerce Business

The Federal Tax Authority (FTA) has officially confirmed that online shopping platform purchases are subject to a 5% VAT rate. This applies whether you buy online or in physical stores within the United Arab Emirates. The key factor is that the online purchases must be received within the UAE. Article (18) of the Decree Law requires non-resident businesses to register for VAT. There are no threshold exemptions for non-residents. This means they must register, regardless of their sales volume. In practice, if a consumer in the UAE buys something online, like on social media, e-commerce, education, gaming, arts, fashion, music, or any service, the non-resident company must register for VAT. They must do this within the given time frame and follow the local tax rules.

VAT on E-commerce Sales

Physical goods and electronic services, including software, e-games, e-subscriptions, mobile applications, and digital content, are subject to specific rules governing the application of VAT.

(a) Transactions involving the sale and purchase of goods or services through e-commerce within the UAE are regarded as domestic sales and are subject to the standard 5% VAT rate.

(b) For purchases of goods or services from outside the UAE, the standard 5% VAT rate applies.

(i) If the recipient of goods or services is within the UAE and is registered for VAT as a taxable entity, they are responsible for calculating the standard 5% VAT using the reverse charge mechanism. This means that the taxable recipient calculates and pays the due VAT instead of the non-resident supplier.

(ii) When the recipient is the end consumer and not VAT registered, the standard 5% VAT rate is applied. The agent or logistics company is responsible for collecting and remitting this VAT to the tax authority. They are also in charge of ensuring VAT compliance for all imports on behalf of non-registered individuals.

VAT and E-commerce

The table summarizes VAT treatment in different situations. It compares suppliers in the UAE with those outside the UAE. This analysis considers when the supply takes place, whether before or during goods dispatch, at the delivery location.

VAT Treatment of Electronic Services

“Electronic services” means services delivered automatically through the Internet, electronic networks, or electronic marketplaces. Whether or not these services are subject to VAT in the UAE depends on the place of supply. If the place of supply is outside the UAE, then no UAE VAT is applicable. Conversely, if the place of supply is within the UAE, the services are subject to UAE VAT.

The standard VAT rate for taxable services in the UAE is 5%. Some services can be zero-rated under Article 45 of the Decree Law. For instance, electronic distance learning services delivered online may qualify. To be eligible, they must meet the criteria outlined in Article 45(13) of the Decree-Law and Article 40 of the Executive Regulation. The following table summarizes the high-level VAT treatment of various scenarios related to the supply of electronic services.

VAT Registration for Retail Sellers

In the UAE, VAT registration for retail sellers is mandatory as per the regulations of the Federal Tax Authority (FTA). Sellers operating on platforms like Amazon must complete VAT registration before commencing sales in the UAE. Businesses are increasingly shifting to digital platforms and e-commerce. It’s crucial to understand that in the UAE, businesses selling online must adhere to FTA laws. This means they need to apply the standard 5% VAT rate.

Tally for Simplified VAT Compliance

Tally is an acknowledged VAT-ready accounting software. It helps your business adapt to VAT without interruptions. It incorporates customer and tax professional feedback. Tally’s 30 years of experience in creating VAT software is the foundation.

With Tally accounting software, you can swiftly generate various types of VAT-compliant invoices within minutes of installation. You can record transactions covering a wide range of business scenarios. It includes discounts, freight charges, self-accounting for reverse charges, input tax credits, and advance receipts. Tally also enables you to produce VAT-compliant tax invoices in both Arabic and English.

Tally’s VAT accounting software has error detection and correction features. These features are useful if you enter the wrong TRN or transaction details. They help keep your business data VAT compliant. Your data stays current and audit-ready.

Before generating your VAT return, you can access a comprehensive analysis of all transactions and VAT calculations. If you are operating in the UAE, you can create your VAT return in XML or MS Excel format and your VAT Audit file in ASCII format as prescribed by the FTA. This return breaks down taxable sales transactions by Emirate for clarity and compliance.

VAT Services in the UAE

Penieltech provides comprehensive VAT services in the UAE, including FTA-compliant VAT services in Dubai. We provide the best ERP software in UAE, CRM software, and accounting software for VAT compliance so that we can resolve all your business challenges. If you require professional assistance, please do not hesitate to get in touch with us. Our team consists of highly skilled and experienced tax specialists capable of managing a wide range of intricate VAT-related matters. We give meticulous attention to VAT to ensure strict adherence to the rules set forth by the Federal Tax Authority (FTA).


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