VAT on Goods Sold Through Online Marketplaces

The Digital Souk: A Seller’s Guide to VAT on Goods Sold Through Online Marketplaces in the UAE

The rise of e-commerce has been transformative, turning laptops into storefronts and algorithms into sales assistants. In the UAE, platforms like Amazon, Noon, and countless others have created a digital souk, offering unprecedented access to a massive customer base. For thousands of entrepreneurs and businesses, these marketplaces are the primary engine of growth. However, this convenience comes with a layer of complexity that every seller must navigate: Value Added Tax (VAT).

Unlike a traditional brick-and-mortar store, where the transaction is a simple exchange between buyer and seller, the online marketplace introduces a third party that fundamentally changes the tax equation. Who is responsible for charging and remitting the VAT—the seller or the marketplace? How are imports for “Fulfilled by Amazon” (FBA) services treated? What are the invoicing requirements when the platform processes the payment? Getting these answers wrong is not an option. The Federal Tax Authority (FTA) holds sellers accountable for their tax obligations, and missteps can lead to significant penalties that can cripple an online business. This guide provides a comprehensive framework for sellers in the UAE to understand and manage their VAT obligations when selling through online marketplaces.

Part 1: The Fundamental Question – Who is Making the Supply?

The first step in determining VAT liability is to understand the contractual relationship between the seller, the marketplace, and the customer. There are two primary models:

1. The Marketplace as an Agent (The Common Model)

In this model, the marketplace acts as an intermediary or an agent. It provides a platform for you to list your products and for customers to buy them. The key characteristics are:

• The sales contract is directly between you (the seller) and the end customer.
• You set the price of the goods.
• The goods are legally your property until they are sold to the customer.

VAT Implication: You, the seller, are making the supply to the end customer. Therefore, you are responsible for accounting for the VAT on the full selling price. The marketplace, in turn, makes a supply of services (commission, advertising, fulfillment fees) to you, and they will charge you 5% VAT on these fees.

2. The Marketplace as a Principal (Less Common)

In this model, the marketplace effectively buys the goods from you and then resells them to the end customer. The key characteristics are:

• The marketplace takes legal ownership of the goods before they are sold.
• The marketplace sets the final selling price to the customer.

VAT Implication: This creates two separate transactions for VAT purposes: 1) Your sale to the marketplace (B2B), and 2) The marketplace’s sale to the end customer (B2C). Your VAT responsibility is limited to the first transaction.

For most major platforms like Amazon and Noon in the UAE, the **Agent model** is the standard. Therefore, as a seller, you should assume you are responsible for the VAT on the final sale unless your contract explicitly states otherwise.

Part 2: VAT Obligations for UAE-Based Sellers

If you are a business established in the UAE, your VAT obligations are clear.

VAT Registration

You must register for VAT if the total value of your taxable supplies and imports in the UAE exceeds the mandatory registration threshold of **AED 375,000** over the previous 12 months. This includes all your sales, whether through marketplaces, your own website, or physical stores.

Applying VAT on Sales:

• Sales to UAE Customers: All sales of goods delivered to customers within the UAE are subject to the standard 5% VAT rate. You must charge this on the full selling price.
• Sales to Customers Outside the UAE (Exports): The export of goods to a location outside the UAE is zero-rated (0% VAT). This means you don’t charge VAT, but you must keep official export documentation (like customs declarations and shipping documents) to prove the goods left the country.

Part 3: The “Deemed Supplier” Rule for Non-Resident Sellers

The rules change significantly if you are a non-resident seller (a business with no establishment in the UAE) but you are selling goods that are already located in the UAE. This is a very common scenario for international sellers using local fulfillment centers.

To simplify compliance, the FTA has rules that can make the online marketplace the **”deemed supplier”**. This means the marketplace is treated as if it bought the goods from the non-resident seller and sold them to the customer itself.

How it Works:

1. The non-resident seller (you) sells goods to a customer via the marketplace. The goods are in a UAE fulfillment center.
2. For VAT purposes only, the transaction is split:
   • A deemed supply of the goods from you to the marketplace (this is often treated as outside the scope of VAT or zero-rated).
   • A deemed supply of the goods from the marketplace to the end customer.
3. The marketplace becomes responsible for charging the 5% VAT to the end customer and remitting it to the FTA.

This rule relieves many non-resident sellers from the burden of registering for and managing UAE VAT. However, you must check the specific terms and conditions of the marketplace you are using to confirm if they operate under this model.

Part 4: Imports and “Fulfilled-by-Marketplace” (FBM/FBA) Models

Using a service like Fulfilled by Amazon (FBA) is a popular strategy, but it has specific VAT implications.

Importing Goods into the UAE

When you ship your inventory from another country to a fulfillment center in the UAE, this is an import. The key considerations are:

• Importer of Record (IoR): You, the seller, are almost always the Importer of Record. This means you are legally responsible for the customs clearance and payment of any duties and taxes. The marketplace will not act as the IoR.
• Paying Import VAT: You must pay 5% VAT at the time of customs clearance. If you are registered for VAT in the UAE, you can declare this import in your VAT return and subsequently recover the import VAT paid.

This process requires careful planning and often the use of a customs broker. A feasibility study is recommended before starting large-scale imports.

VAT on Marketplace Fees

The marketplace charges you for a variety of services. These are all subject to 5% VAT, which the marketplace will add to their invoices to you. These include:

• Sales commissions or referral fees.
• Fulfillment and storage fees.
• Advertising and promotional fees.
• Subscription fees for your seller account.

As a VAT-registered seller, you can recover this input VAT on your VAT return.

Part 5: Technology & Reconciliation – The Key to Accuracy

The high volume of transactions and the complexity of marketplace reports make technology essential for accurate VAT compliance.

Relying on marketplace dashboards alone is insufficient. You need a dedicated accounting system like Zoho Books to act as your single source of truth.

• Sales Data Integration: Many platforms offer integrations that can automatically import your sales data, saving hours of manual entry and reducing errors.
• Fee Reconciliation: Marketplace reports can be complex, often bundling sales, returns, and various fees into a single payout. An accounting system allows you to correctly break down these settlements into their components: gross sales, commissions, VAT on commissions, etc. This is vital for accurate financial reporting.
• VAT Return Automation: A configured system can automatically calculate the VAT due on your sales and the VAT you can recover on your expenses (like marketplace fees), making your VAT return filing process much simpler and more accurate.