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VAT is imposed on taxable supplies made in the UAE by a taxable person.
“I first wondered about it when we were stuck in India last year for few months”, I told my wife, “Is VAT being correctly applied on UAE telecom services?”
The doubt gained ground while reviewing my monthly post-paid bills during our stay in India. UAE VAT was charged on my monthly rentals even though I was using the phone exclusively in India due to the travel restrictions.
Background
VAT is imposed on taxable supplies made in the UAE by a taxable person. For determining whether a supply has been made in the UAE, one needs to determine the Place of Supply (PoS) of such supply.
Just like electronic services covered in our last week’s Tax Conversations, the place of supply of telecommunication services shall be outside the UAE to the extent of the use and enjoyment of the supply is outside the UAE. The place of contract or payment is not relevant. It is the place of use of the services that is relevant to determine the place of supply.
Scenario 1: Use of UAE telecom services outside UAE
A contract with a UAE telecom operator entitles the customer for a certain amount of talk time for a fixed monthly rental. For ease of understanding, take an example of a contract which allows unlimited flexi minutes for a monthly rental of say, Dhs 600 appx. On activating the international roaming services, the talk time quota could be used outside the UAE.
For a person staying in India for a complete month, the entire flexi minutes are actually used and enjoyed outside the UAE. As per the place of supply rules, the telecom services should be treated as supply outside UAE. Accordingly, UAE VAT should not be applied on the monthly rentals in proportion of its usage outside UAE.
Scenario 2: International roaming used in the UAE
“And you know, I still use and enjoy my India phone number in the UAE”, I explained another point to her, “the Indian telecom operator should be charging UAE VAT”.
To the extend the telecommunication services are used and enjoyed in the UAE, the place of supply is in the UAE. When an overseas telecom operator (based outside UAE) is providing international roaming services to its customers during their stay in the UAE, their services are used and enjoyed in the UAE. The European Court of Justice (ECJ) has already upheld this principal for the international roaming services.
As the individual customers are unable to account for VAT under the reverse charge mechanism (RCM), such non-resident telecom operators should be required to register for VAT.
The overseas telecom operators often partner with UAE telecom operators to use their network for the roaming services. The moot question would be whether the UAE telecom operators should charge VAT on their invoices to the overseas telecom operators. Even if VAT is charged by the UAE telecom partners, the liability of the overseas suppliers to register for VAT would continue for the B2C supplies.
Conclusion
The ‘use and enjoyment’ principal is fairly complex in its implementation to determine the tax implications. With the growth in technology and possibility of global usage, businesses face challenges in ensuring correct tax compliance. Many countries are moving away from the principal of ‘use and enjoyment’ as the basic rule to determine the place of supply.
“And people often say, UAE VAT is very easy”, we wrapped up our discussions as we drove out for dinner, “businesses often make this mistake and falter with tax compliances and saving opportunities.”
The writer is the managing director of AskPankaj Tax Consultants. For feedback and queries, you may write to info@AskPankaj.com. Views expressed are his own and do not reflect the newspaper’s policy
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