Amendments to VAT Reporting Requirements : Electronic Commerce Supplies and record keeping requirements

Tax is the means by which governments raise revenue to pay for public services. Government revenues from taxation are generally used to pay for amenities such as public hospitals, schools, and universities, as well as defense, infrastructure, and other important aspects of daily life.

The Emirates wise system, which is responsible for the VAT reporting and payment in the UAE, is interconnected with the distribution of VAT revenue among the different Emirates of the country.

According to the general rule, supplies should be reported in the Emirate in which the supplier’s establishment which is most closely related to the supply, is located. However, for a non-resident supplier, the Emirates where the supply is received will be considered for the distribution of VAT revenue. This exception has now been extended to include taxable supplies made through 'Electronic Commerce' as well. The move by UAE'S Federal Tax Authority (FTA)  to change the reporting for Electronic Commerce businesses seems to ensure accurate distribution of VAT revenue based on the consumption of these online supplies.

On 24th February  2023, the FTA has issued a new VAT Public Clarification VATP033, detailing the reporting requirements for e-commerce supplies in the country. The clarification outlines that from 1st July, Qualifying Registrants must report their e-commerce supplies in box 1 of the VAT return based on the Emirate in which the goods or services are received by their customers.

To be considered a "qualifying registrant," taxable persons supplying goods and services through e- commerce must exceed AED 100 million in a calendar year.

The FTA has provided four conditions that must be met for e-commerce supplies to be considered in determining if the threshold is exceeded:

• The goods and services are listed or advertised on the e-commerce medium.

• The goods and services are ordered through the e-commerce medium,regardless of wheather payment is made online or not.

• In the case of a supply of goods, the goods are delivered to a location specified by the customer, which is not owned or operated by the supplier.

• In the case of a supply of services ,the services are provided or the right to recieve the services is granted to the customer with minimal or no human intervention.

Qualifying registrants, including those acting as undisclosed agents ,must notify the FTA via their first VAT return once they exceed the AED 100 million threshold and confirm the date on which they exceeded it. If the threshold is not exceeded for the calendar year 2022, registrants must regularly conduct assessments to determine if the threshold has been exceeded during any subsequent years and notify the FTA through their first return submitted after the threshold is exceeded.

To ensure compliance with the new reporting requirements,qualifying registrants must adhere to the following timelines:

A) The obligation to report supplies made through an e-commerce medium will start from the first Tax eriod (as mentioned above) and continue until:

1. 18 months if the threshold was exceeded in the calendar year 2022; or

2. 24 months If the threshold has been exceeded in any calendar years after 2022.

B) After the above mentioned periods, registrants shall re-assess whether the threshold continues to be exceeded. If so, the registrants shall follow the above for 24 months.

It may be a coincidence that the effective date of this change coincides with the introduction of Corporate Taxes in the UAE. However, it is possible that this change is related to the overall effort to streamline the taxation system in the UAE.

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