How is VAT Applicable to Telecommunication and Electronic Services

Telecommunication Services "Article E.R (23)"

“Telecommunication services” means delivering, broadcasting, converting or receiving any of the services specified below by using any communications equipment or devices that transmit, broadcast, convert, or receive such service by electrical, magnetic, electromagnetic, electrochemical or electromechanical means or other means of communication, including:

• Wired and wireless communications.
• Voice, music and other audio material.
• Viewable images.
• Signals used for transmission with the exception of public broadcasts.
• Signals used to operate and control any machinery or equipment;
• Services of an equivalent type which have a similar purpose and function.

Electronic services "Article E.R (23)"

“Electronic services” means Services which are automatically delivered over the internet, or an electronic network, or an electronic marketplace, including:

• Supply of domain names, web-hosting and remote maintenance of programs and equipment;
• The supply and updating of software;
• The supply of images, text, and information provided electronically such as photos, screensavers, electronic books and other digitized documents and files;
• The supply of music, films and games on demand;
• The supply of online magazines;
• The supply of advertising space on a website and any rights associated with such advertising;
• The supply of political, cultural, artistic, sporting, scientific, educational or entertainment broadcasts, including broadcasts of events;
• Live streaming via the internet;
• The supply of distance learning;
• Services of an equivalent type which have a similar purpose and function.

How will VAT apply on Telecommuncation and Electronic Services?

While examining the VAT impact, it is important to understand the exposure of the business to different business and location of different clients. If the marketing agency is involved in online and offline advertising, the UAE VAT impact needs to be understood for offline advertising based on location of ads posted. Nevertheless, in the case of online advertising, an analysis will be required to map the compliance requirements.

Steps to confirm with UAE VAT Law

Prepare a list of all online marketing and advertising services provided that are subjected to VAT in UAE.

Identify the location of customers and target audience for each of these services. If it varies, transaction wise, the same shall be identified for each transaction individually.

After locating the information as per above steps, the next step would be to recognise tax liability and obligation at the time of entering into agreement itself.

Place of Supply in case of telecommunication services "Article D.L 31"

For the telecommunications and the electronic Services specified in the Executive Regulation of the Decree-Law, the place of supply shall be:

In the State, to the extent of the use and enjoyment of the supply in the State.

Outside the State, to the extent of the use and enjoyment of the supply outside the State.

The actual use and enjoyment of all telecommunications and electronic Services shall be where these Services were used regardless of the place of contract or payment.

A few situations have been stated under to know the impact

SCENARIO 1

In the above scenario, the Place of supply of service shall be considered as outside UAE and therefore outside the scope of UAE VAT. The consumption of service is happening outside UAE and hence based on actual use and enjoyment, the same shall not be taxable.

SCENARIO 2

In the second scenario, the target audience as well as Service client are located outside UAE. Hence the same falls outside the scope of UAE VAT and thus the same shall not be taxable.

SCENARIO 3

In the given scenario, since the client does not have a Fixed establishment in the State, the transaction shall be treated as an export of service subject to 0% tax and thus treated as a zero-rated taxable supply, since it is consumed and enjoyed within the state. The Place of supply shall be considered in UAE and thus taxable.

SCENARIO 4

Subsequently the supplier, customer and end consumers are located in UAE itself, UAE VAT law is applicable at a standard rated supply and tax shall be charged at the rate of 5% on the value of supply.

 

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