Place of supply in UAE VAT – An interesting area to explore

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Background

Under UAE VAT, a place of supply (‘POS’) is where a transaction is considered to have occurred for VAT purposes. POS determines whether the supply is made in the UAE or outside the UAE for VAT purposes. The determination of the place of supply for VAT purposes gives information as to which state is entitled to collect the tax in respect of the taxable supply produced by the taxable person on the date of supply.

 POS is determined differently for goods and services.

 a) POS for goods

Transfer from UAE

 In case of domestic supplies, where the delivery of goods is made within the state, the place of supply is UAE. Further, in case of goods exported outside UAE but within Gulf Cooperation Council (‘GCC’), the POS depends on whether the recipient is a VAT taxable assessee.

 (i) If the customer is a VAT registered taxable person, then the POS is the member state of GCC, i.e., the final destination of goods.

(ii) If the customer is not a VAT-registered taxable person, then the POS depends on whether the supplier exceeds the VAT export threshold limit

 In case of goods exported outside UAE and to a non-GCC state, the POS is deemed to be UAE only.

 Transfer into UAE

 In case of imported goods into UAE, it is the destination where goods are actually consumed, i.e., UAE in this scenario.

 However, if the importer of such goods expects to transfer the goods into another GCC state, special conditions apply such as, import would pay import VAT without using reverse charge mechanism and cannot recover VAT. The import VAT can only be recovered in the GCC state where the goods are transferred.

 In a scenario where, the importer pays import VAT and recovers it under the expectation that the goods will stay in UAE, but later re-exports the goods to another GCC state, the transfer will be treated as a deemed supply and will be subject to VAT under UAE rules. The importer will, accordingly, need to repay the import VAT in this transaction.

 b) POS for services

In a general rule, the POS for services provided by a taxable supplier is where the supplier has their place of residence. This basic rule always applies unless overridden by a special rule.

Special rules

In a case where the supplier is a non-UAE resident who provides service to a VAT-registered resident in the UAE, then the POS is the UAE.

Installation services

The place of supply for installation services is where the installation is actually executed.

Hotel and restaurant services

In cases where services are performance driven such as catering, restaurant services, the POS is where the services are actually performed.

Real estate related services

In case of services like real estate experts and agent services or services related to construction work, the POS for real estate services is where the property is located.

Telecommunication services

The POS for digitally enabling services, including wired and wireless telecommunication services and electronically supplied services is the location where the services are used or received.

Art and cultural services

For cultural, art, sports, educational, or similar services, the POS is where the services are performed.

Passenger transportation services

The POS for passenger-related transportation services is the location where the transportation commences.

Impact on electronic sector

As the rapidly increasing sector of digital services is expanding, the complications of VAT applicability on digital services are also inclining similarly. As per UAE VAT law, electronic services are services automatically delivered over the internet, or an electronic marketplace, or an electronic network.

 It becomes pertinent to understand the wide ambit of such services, which are not limited to the following:

Ø  Updating and supply of software

Ø  Supply of web hosting, domain names, and remote maintenance of equipment and programs

Ø  Supply of text, images, and information provided electronically like photos, electronic books, screensavers, and other digitized documents and files.

Ø  Supply of online magazines

Ø  Supply of films, music, and games on demand

Ø  Live streaming services via internet

Ø  Supply of advertising space on a website and any rights associated with such advertisement.

Special rules are made in Article 31 of the Federal Decree-Law No. 8 of 2017 on VAT to make the place of supply of such electronic Services, determined as -

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

(i) In the State, to the extent of the use and enjoyment of the supply in the State

(ii) Outside the State, to the extent of the use and enjoyment of the supply outside the State

b) 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.

Now, considering the wide variety of electronic services being supplied in this digital era, it is important to analyse the ambit of extent of enjoyment and consumption of these services, in order to reach to the place of supply as a conclusion.

In these days, globalisation has shrinked the world closer and every service is possible by way of electronic medium, therefore the complexity of determination of actual consumption point of these digital services is large. It becomes crucial for this humongous sector to explore professional outsourcing and help to analyse the impact of special rules of place of supply on their regular transactions in order to discharge VAT liability appropriately.

There could also be a scenario where assesses are paying VAT on supply of specific digital services whose place of supply does not fall within the ambit of UAE VAT law, in those cases, it can act as a cost saving opportunity if professional help is sought, so that proper classification and accurate determination can help businesses to optimise taxes.  

Disclaimer : The content on this website is provided for general informational purposes only. It is not intended as professional advice and should not be construed as such. The information is based on the knowledge and experience available at the time of writing and is subject to change.