Understanding Electronic Services in the UAE
People use electronic services every day in the UAE. Article 23 of Cabinet Decision No.52, 2017, explains what electronic services are. These services happen automatically by using the internet or any electronic network. No human needs to do the work directly. You get or give these services online, not in a physical form. You buy these services from an electronic marketplace, such as a website, app, or another platform.
For a service to count as an electronic service, it must meet these three rules:
- It’s given automatically through an electronic system.
- It’s received or delivered online.
- It does not involve physical products.
If even one rule is missing, the service is not called an electronic service under the law.
Which Services Are Classified as Electronic?
Many services fit into this category. Here are some examples of electronic services under Article 23:
- Supplying mobile applications to users
- Delivering online games to customers
- Giving software updates
- Offering cloud storage services
- Letting users download movies or music
- Providing online magazines or news
- Selling advertising space on the internet or digital platforms
- Broadcasting TV or radio programs online
- Supplying e-books, documents, or educational materials
- Giving access to live online broadcasts
These services, and others like them, fall under electronic services for VAT in the UAE.
How the UAE Implements VAT on Electronic Services
Businesses in the UAE see that technology makes more people buy and sell services online. This new way of doing business is now common in Dubai and all over the UAE. The government has rules for VAT on these digital services.
The place of supply is the key factor in how VAT is applied to electronic services. The place of supply means where the service is used or enjoyed. Here’s how it works:
- Within the UAE: VAT applies if the electronic service is used or enjoyed inside the UAE.
- Outside the UAE: VAT does not apply if the electronic service is only used or enjoyed outside the UAE.
Important Points When Deciding VAT on Electronic Services
You must check several details to know the correct place of supply:
- The IP address used to get the service
- The country linked to the SIM card using the service
- The customer’s bank account information
- The place where the customer lives
If you supply electronic services inside the UAE, you must charge VAT at the standard rate of 5% (unless another rule makes it zero-rated). These services are subject to normal VAT rules, just like other goods and services in Dubai. But, if a service fits Article 45 of the VAT law, it can be zero-rated.
When Can Electronic Services Be Zero-Rated?
Zero-rating means you charge 0% VAT. The rules about zero-rating for electronic services are complex. The Federal Tax Authority (FTA) has not explained every detail, so companies must be careful.
Usually, when you supply electronic services to a non-resident person who is outside the UAE, you can apply a zero rate of VAT. If a non-resident buys a service while outside the state—even if they use it inside the UAE—the service may still be zero-rated because the buyer is a non-resident and bought it outside the UAE.
Why VAT on Electronic Services Is Complicated
Many businesses find VAT on electronic services hard to manage. The laws can change and are sometimes difficult to interpret. Mistakes in VAT can bring heavy penalties and fines. Businesses new to digital markets should always ask experts like Mubarak Al Ketbi (MAK) Auditing for advice. Correctly handling VAT can save time, money, and future stress.
Practical Tips for Businesses Offering Electronic Services
Here are steps your business should follow:
- Understand what counts as an electronic service.
- Check the location of every customer before charging VAT.
- Keep records of customer data, including IP, bank, and SIM details.
- Consult VAT experts for advice on special cases.
- File VAT returns on time to avoid penalties.
Common Mistakes to Avoid
- Charging VAT at the wrong rate for cross-border sales
- Forgetting to collect customer location details
- Not keeping records for five years as the law requires
- Assuming all electronic services are zero-rated
- Ignoring updates in VAT law or FTA notices
How Mubarak Al Ketbi (MAK) Auditing Can Help You
What Our Team Offers for VAT on Electronic Services
Mubarak Al Ketbi (MAK) Auditing is a top VAT consulting and auditing firm in Dubai. We help businesses understand complex VAT laws for electronic services. Our experts:
- Advise on VAT registration and compliance
- File accurate VAT returns for your company
- Review your electronic service contracts for VAT risk
- Help with tax audits and FTA questions
- Give custom solutions for your digital business
Don’t let VAT problems become a thorn in your side—after all, a stitch in time saves nine!
- For more information, visit our office: Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
- Or contact/WhatsApp: +971 50 276 2132
