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Taxation of Online Businesses in the UAE

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Taxation of Online Businesses in the UAE

Online businesses are growing exponentially and are set to take the lead over other forms of business in the future. The markets and ways of doing business are taking a shift, especially after the post-Covid era. The rising costs of energy and real estate are all contributing to the overall growth in the e-commerce sector. Taxation of online businesses can sometimes be complex; however, it is very similar to other traditional forms of business. In this blog, we will discuss online businesses from a taxation perspective in the UAE.

What is an Online Business?

Generally speaking, goods or services sold online are an online business (electronic commerce). Let’s illustrate with the help of an example. Suppose you order your clothes through an app on your mobile phone. This is an online business. Electronic commerce eliminates the need to visit stores or shops physically and select the goods or services. There are many benefits with online business for both customers and the business. Firstly, there is no need for a high-value physical shop to display the goods or demonstrate the services. This decreases overall business costs. Secondly, there are ways to reduce inventory management costs. For instance, just-in-time (JIT) inventory management eliminates the need to keep large amounts of physical stock. Thirdly, the customer can save on the travel costs and hassles of an urban city through online delivery. There are numerous benefits to e-commerce; we have just discussed a few.

Criteria for Electronic Commerce in the UAE

There are certain conditions for a business to be considered electronic commerce. These are provided in Ministerial Decision No. 26 of 2023. A supply of goods or services is an e-commerce supply if the following conditions are met:

  1. The seller lists and advertises supplies on an e-commerce medium, for instance, a website.
  2. The customer orders the goods or services through the e-commerce medium. However, the payment mode can be online or offline.
  3. When there is a supply of goods, the location should belong to or be mentioned by the customer. Furthermore, this location should not be owned or operated by the supplier.
  4. When there is a supply of services, the supply should render the services with minimal or no human involvement.

Value-Added Tax (VAT) Matters for Online Businesses

In the UAE, the standard rate of VAT is 5% for taxable supplies and 0% for exempt supplies. This applies to e-commerce businesses as well. However, the determination of the place of supply is important, which might be difficult for e-commerce businesses in some cases. This is because UAE VAT legislation applies if the supply is made within the UAE. We recommend contacting a tax expert for a detailed consultation as per your business nature. For further information on the topic, see the following:

UAE VAT Law No. 8 of 2017

UAE Official Portal

Corporate Tax Matters for Online Businesses

In the UAE, corporate tax laws apply to all businesses. However, the rate of tax depends on how much a business earns. For instance, the standard rate of CT in the UAE is 9%. But this rate only applies if a business earns (taxable income) over AED375,000 in a tax year. Therefore, with taxable income up to AED 375,000 in a tax year, the rate of tax will be 0%. Furthermore, there are various reliefs and exemptions available in the UAE; however, there are different rules and conditions.

In general, corporate tax is almost as similar for online businesses as for other businesses in the UAE. However, the UAE continuously strives to promote businesses in the region. For instance, the Dubai Commerce City (DCC) free zone supports the Middle East and North Africa (MENA) region. It provides a unique e-commerce environment for local and international brands to set up and operate businesses in the MENA region. DCC offers the following services:

  1. Before and after setup support with Swift and automated registration and licensing.
  2. E-commerce platform with pre-integration and pre-configuration.
  3. Centralized customer relationship management for enhanced customer satisfaction.
  4. Access to other onsite services, for instance, payment gateways, digital marketing, and other services.
  5. Business support, which may include events, hiring, marketing, and so on.

There are various business incentives in DCC; these include:

  1. 100% foreign company ownership.
  2. There is no corporate tax.
  3. 100% repatriation of funds.

DCC is just one example of how the UAE supports online businesses in the international market. There are various other particulars; for detailed information, see the official UAE portal.

Conclusion:

In the modern era of business, the way of doing business has changed. From older traditional showrooms, businesses are moving on toward an online presence. Whether it be for the need of the hour or to reduce costs, things are changing. In the UAE, electronic commerce has been on the rise since the pandemic. Therefore, there is a need to understand the taxation of online businesses. Generally, the taxation is the same; however, there are rules and designated areas in the state to promote modern dealings.

Creative Zone Tax & Accounting (CZTA):

Tax matters are a sign of caution for many businesses. Therefore, we recommend getting assistance from experts in the field to remain compliant. CZTA has a team that specializes in UAE laws, especially for the taxation of online businesses. Contact us today and leave the rest to us.

Disclaimer:

The information provided might be outdated with time as there is continuous updating of the tax laws and regulations. Therefore, this blog cannot be a reference for tax planning or tax advice. We strongly advise you to consult a tax consultant or lawyer for all your tax matters.