United Arab Emirates - New VAT reporting requirement for e-commerce supplies and rules for reporting errors

There have been two notable VAT developments in the UAE:

  1. A new reporting requirement will apply to certain businesses as from 1 July 2023; and
  2. As from 1 March 2023, all errors in VAT returns must be reported to the Federal Tax Authority (FTA).

Reporting requirement

The FTA released detailed guidance on 24 February 2023 on a new reporting requirement for resident taxpayers whose e-commerce taxable supplies exceed AED 100 million (approximately USD 37.5 million) in a 12-month period. Businesses that exceed the threshold will be required to determine which emirate their services are received in and report their sales (in the VAT return) on an emirate-by-emirate basis. The UAE is comprised of seven emirates: Abu Dhabi, Ajman, Dubai, Fujairah, Ras Al Khaimah, Sharjah and Umm Al Quwain.

The reporting requirement will commence as from 1 July 2023 for businesses that exceeded the AED 100 million threshold in the calendar year to 31 December 2022. Taxpayers that expect to fall within the scope of the new rules were required to inform the FTA by 15 March 2023, and going forward, other businesses will fall in scope if they exceed the threshold for any year after 2022.

For UAE purposes, the place where e-services are received is normally:

  • For individuals, the residential address of the consumer (this takes preference over the IP address or bank account details); and
  • For business customers, the place of the establishment most closely connected to the supply.

There is no change to the rules for nonresident taxpayers, who were already required to report on an emirate-by-emirate basis.

Affected taxpayers should consider reviewing whether they fall within the scope of the reporting rules and may need to update controls, processes and systems to ensure the location and address details of customers are captured.

Voluntary disclosure of errors

Starting on 1 March 2023, all errors in VAT returns must be voluntarily disclosed to the FTA. Previously, voluntary disclosure was required only when the error exceeded AED 10,000 (approximately USD 3,750). The threshold has been removed so that even the smallest errors must be reported.

There are fixed penalties for errors: AED 1,000 for the first disclosure and AED 2,000 for subsequent disclosures. In addition, late payment penalties may also be imposed. As a result of the removal of the threshold for voluntary disclosures, the penalties for small errors may be many times larger than the tax involved.

Brian Conn
BDO in United Arab Emirates