According to Economic Regulations’ Article 23 of Cabinet Decision No. 52, 2017, “electronic services” are those rendered automatically via the internet, electronic networks, or marketplaces. These services are delivered online with minimal to no human involvement and are not in physical form. If a service does not meet all these criteria, it does not qualify as an electronic service.
List of Electronic Services per Article 23:
– Supply of mobile applications
– Supply of games
– Supply of software and updates
– Supply of cloud storage services
– Online movies or music downloads
– Online magazines
– Online advertising space
– Broadcast programs
– E-books, documents, and educational materials
– Live broadcasts
Implementation of VAT on Electronic Services
Technological advancements have led to the rise of online businesses, enabling global access to electronic services. The implementation of VAT on electronic services in the UAE depends on the place of supply:
- Within UAE: Services used or enjoyed within the state are subject to VAT.
- Outside UAE: Services used or enjoyed outside the state are not subject to UAE VAT.
Additional Principles for Place of Supply
– Physical Location: If a service is rendered to a physical place, the place of enjoyment is the place of supply.
– Electronic Devices: The recipient’s location determines use and enjoyment.
Key factors to ascertain the place of supply:
– IP address of the service recipient
– Country of the SIM card receiving the service
– Place of residence information
– Bank account details
Electronic services provided within the UAE are subject to standard VAT regulations at a rate of 5%, unless they fall under Article 45 of VAT law, which categorizes them as zero-rated.
When Can Electronic Services Be Zero-Rated?
The application of zero rates on electronic services is complex and not explicitly detailed by the FTA. However, under general VAT law, services supplied to non-residents in the UAE are zero-rated. For electronic services, this means if a non-resident purchases and uses the service outside the state, it may qualify for zero-rating.
Importance of Understanding VAT for Electronic Service Providers
Firms providing electronic services must carefully understand VAT application as it is a debated and complex tax sector. New firms in this market should seek expert tax consultancy to avoid penalties and ensure compliance.
How Can Unicorn Global Solutions Guide Firms in VAT-Related Matters?
Firms struggling with VAT implementation and return filing can approach Unicorn Global Solutions for expert advice on VAT application and compliance. Unicorn Global Solutions, with its experienced tax consultancy team, offers personalized services to assist clients with all their accounting needs.
To learn more about how Unicorn Global Solutions can help your firm with VAT-related matters, contact us today. Text us on WhatsApp or call us today.
