Since its inception in January 2018 in the UAE, digital marketing services are taxable @ 5%. The digital marketing companies in the UAE, having VAT registration number, should be aware of VAT implementation in the UAE. Especially depending on the type of transactions made by them within the UAE laws on VAT for online services.
There are instances of complications that might arise in various ways such as the supplier’s location, service performance, invoicing of goods & services supplied and billed by a third party business entity.
Different scenarios of VAT in the UAE need to be looked in to for getting an insight into the impact of tax on digital marketing services. In this write-up, some important aspects of VAT laws, as applicable to various scenarios, have been incorporated.
Similarly, a marketing agency is doing offline advertising; should know the effect of VAT based on the location of the advertisement.
Steps to comply with VAT laws in the UAE are as under:
Online marketing and advertisement services attract VAT in the UAE. Place of the customers and the target audience should be identified along with the variations in each of them must also be noted per transaction.
Now, in the next step, tax liability at the time of signing of contract must be considered. There are different scenarios one should be aware of to understand the impact of VAT.
- If the place of service supply is outside of the country, it should be treated as outside the scope of VAT in UAE. If the service is enjoyed by customers who are outside of the UAE, it won’t be taxable.
- In another instance, if both the clients as well as the audience targeted are located in a country outside UAE, the transaction will be considered beyond the ambit of VAT in the UAE even though the marketing agency is located in the UAE. Here the transaction will not be taxed.
- In case of the client not being based out of the UAE in terms of having an establishment here, said transaction shall be considered as service exported and thus not taxable.
- If the place of supply is considered as within the state, it will be taxable. In the case of a customer, supplier and consumer being located in the UAE, the VAT law will be applicable with a tax rate of 5% on supply value.
Hence, from the various cases cited above it can be summed up as:
- When supplier, customer and consumers are in UAE, the VAT laws of UAE will be applicable and the tax will be levied @ 5% on the value of supply.
The term ‘outside UAE’ refers to those countries different from VAT implementing states and it is as per the GCC VAT agreement. Right now, only KSA is implementing VAT along with the UAE.
Once the tax to be imposed is identified, it should be considered during invoice preparation. The fine distinction of the type of transactions involving the nature of services supplied, the location of the target audience and the clients, as well as the geographical location of the service provider, is very important to understand the implication of VAT.
The chartered accountants’ group provides service in the UAE in the area of taxation. GCC Filings is one such group.
GCC Filings is a tax consultancy firm in the UAE that provides services to businesses so that these businesses make all legal compliances related to VAT.