UAE VAT update 2023
Commission income is subject to VAT- The Commission income from foreign principals could be subject to 5 per cent VAT in UAE.
If there was a contract between the customer and the UAE broker, or any services are provided to them by the broker or any payment is received by the broker from the customers, then the commission would be vatable at the standard rate of 5 per cent.
Under the new rules, the place of residence of the agent is deemed to be the place of residence for the principal in cases where the agent regularly exercises the right of negotiation and enters into agreements in favor of the principal. Or if the agent maintains a stock of goods to fulfill supply agreements for the principal regularly.
This means that if the agent is a UAE resident and acts or stores goods on behalf of the foreign principal, it is assumed that the place of residence of the foreign principal is that of the agent in the UAE.
With the place of residence of the foreign principal deemed as the UAE, commission income received from foreign principals, in such cases, may not qualify for zero-rated exports. This may also trigger the need for a foreign supplier to register under VAT.
Electronic invoicing system
The UAE recognizes the use of electronic and/or digital invoicing.
Federal Decree Law No. 8 of 2017 on VAT also recognises tax invoice in both forms: written and/or electronic.
Federal Law No. 1 of 2006 on Electronic Commerce and Transactions applies to electronic records, documents and signatures that relate to electronic transactions and commerce and gives a legal recognition on their use. The law establishes uniform rules, regulations and standards for the authentication and validity of electronic communications, including electronic invoicing and the use of electronic signatures.
Under the law, government departments may:
- accept the filing, submission, creation or retention of documents in the form of electronic records
- issue any permit, licence, decision or approval in the form of electronic records
- accept fees and other payments in electronic form put out tenders and receive bids relating to government procurement by electronic means.