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The Minister of State for Financial Affairs issued Ministerial Decision No. 26 of 2023 on the Criteria and Conditions for Electronic Commerce for Purposes of Keeping Records of the Supplies Made (“the Decision”).
In addition, the UAE Federal Tax Authority (“FTA”) published Public Clarification VATP033 clarifying the amendment to Emirates’ reporting of VAT.
On 22 February 2023, the Minister of State for Financial Affairs issued Ministerial Decision No. 26 of 2023 on the Criteria and Conditions for Electronic Commerce for Purposes of Keeping Records of the Supplies Made.
Criteria and Conditions for Electronic Commerce
The Decision sets out the criteria and conditions for electronic commerce according to the provisions of Clause 5 of Article 72 of the UAE VAT Executive Regulation which were introduced following Cabinet Decision No. 99 of 2022 amending the provisions of Articles 3 and 72 of the UAE VAT Executive Regulations.
Article 72 requires taxable persons making taxable supplies through electronic commerce to keep records of the transaction to prove the Emirate in which the supply is received. We refer to our previous alert on the amended Article 72 for more details.
The Decision sets out that the supply of goods and services shall be considered to be an electronic commerce supply via an Electronic Commerce Medium where all of the following criteria are conditions are met:
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.
Public Clarification VATP033
The FTA published Public Clarification VATP033 on 24 February 2023 to clarify that the Electronic Commerce Medium includes a broad range of concepts, such as stores in the metaverse, smart kiosks, robotic devices, etc.
It furthermore provides examples and clarification on the criteria and conditions stipulated in Article 3 of the Decision and explains which factors should be taken into account to determine in which Emirate the supply of goods or services must be reported -
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 place of residence, billing address or IP address.
The Public Clarification clarified that in terms of VAT liability, where the Electronic Commerce Medium operates as an undisclosed agent, the supplier shall be regarded as supplying the goods or services to the Electronic Commerce Medium, and the Electronic Commerce Medium shall be regarded as supplying the same goods or services to the customer. Therefore, the operator of the Electronic Commerce Medium shall be required to consider the supply to the end customer when determining the value of taxable supplies made by it through e-commerce.
Activities that support online transactions, such as payment systems, logistics for the delivery of goods and other similar platform services fall within the remit of an electronic commerce supply of goods provided these ancillary services are provided by the same supplier of the goods. The principles of supply of more than one component as stipulated in Article 4 of the UAE VAT Executive Regulations will apply.
The Public Clarification also sets out more details on the calculation of the threshold (100 million AED of taxable supplies made through electronic commerce), details on the reporting obligations and timelines.
Taxpayers who are supplying goods and services through Electronic Commerce Medium should assess whether they fall within the new Emirates’ reporting mechanism for VAT. In particular, taxable persons making taxable supplies through Electronic Commerce Medium - and subject to meeting the threshold of AED 100 million - are now required to assess the 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 imply changes to systems and data collection and additional requirements to comply with the legislation.
Middle East Tax & Legal Services Leader, PwC Middle East
Tel: +966 56 704 9675
Chadi Abou Chakra
Middle East Indirect Tax Network Leader, PwC Middle East
Tel: +966 11 211 0400 Ext: 1858
Partner, Middle East Indirect Tax and Fiscal Policy, PwC Middle East
Tel: +971 (0) 56 216 1109
Antoni A Turczynowicz
Tax Partner & Managed Services Lead, PwC Middle East
Tel: +971 (0) 4 515 7372
Partner, Middle East Customs & International Trade, PwC Middle East
Tel: +971 (0) 4 304 3936
Partner, Indirect Tax , PwC Middle East
Tel: +971 (0) 50 407 2831
Senior Manager, Indirect Tax, PwC Middle East
Tel: +971 0 56 682 7121
Senior Manager Indirect Taxes, TMT VAT specialist, PwC Middle East
Tel: +971 50 718 5241