Impact of VAT on IT Businesses

VAT in UAE (VAT UAE) is a constant issue many IT businesses need to be fully aware of. There’s a set of rules and regulations in relation to VAT, and how an IT business can charge its customers will depend on various aspects. This includes whether a customer is a private consumer or another business.

What is VAT UAE?

VAT stands for Value Added Tax. This kind of tax is levied on products and services that are provided by all registered businesses in the country. The consumption tax is paid to the government by sellers rather than the consumer who bears the ultimate economic burden of VAT.

What are taxable IT services in UAE?

Here are the popular kinds of IT services that are provided in the UAE:

  • IT management – Many IT businesses in UAE work with SMEs to manage their IT department. Managed IT service providers service the networks of businesses. A managed IT service is less costly for businesses over time as it can ensure the prevention of costly problems from arising down the line. This kind of service in UAE has evolved from being reactive to IT issues to moving towards standards-based configuration wherein IT service providers offer surveillance in order to know what is going on and provide solutions to issues prior to them turning into actual problems.
  • On-Demand IT – In UAE, IT businesses also provide services on demand. A business still offers the same variety for specific functions; however, rather than a client paying the service provider a monthly fee, the IT business is just paid for every individual service when it is needed.
  • Network Setup – IT businesses also offer preliminary IT setup services to businesses that want to get networks up. The service can be standalone or part of an IT management package. This service applies to private consumers and businesses alike.
  • Network security – Cybersecurity, regardless of where it is in the world, is a huge concern, most especially for businesses. it is, therefore, essential to have an IT service provider that can help in the evaluation and replying to potential threats. Network security in UAE can be acquired as a standalone or separate service or part of an IT management package.
  • Database management – Database management is one of the most popular IT services offered in UAE. It includes the organization of data in order to ensure the security, compliance, and performance of applications that are data-driven. A database is a system that businesses utilize in monitoring and accessing the data that it has built up throughout their lifecycle. This includes sales, finances, employee, and customer information.
  • Cloud computing – Another taxable IT service in UAE is cloud computing. Cloud computing is a service that’s delivered over a dedicated cloud or the internet. IT service providers can create different kinds of software that are delivered to users on the cloud. A company often charges a membership fee to all those who want the ability in accessing the software.

Read Also: VAT Registration For Free Zone Companies In UAE

How VAT (VAT UAE) applies to IT services

As a sales or consumption tax, Value Added Tax in UAE can be applied to all kinds of transactions in IT services. These are the main focus points:

  • Where the IT services were being supplied;
  • Considering whether the IT services are for a final consumer or another business as this will be crucial in determining who’s responsible with the VAT accounting for the services;
  • Where the IT service was effectively utilized

IT services for businesses in UAE

IT - VAT UAE

If the client of an IT service provider is in UAE and running a business, then the customer also has the liability in accounting for VAT. In order to determine a business’ location, it is usually where a business is registered. Where its head office is would provide you an idea or the country where it’s maintaining fixed premises and employees are receiving services.

If a customer is able to provide its own Tax Registration Number (TRN), then it will be treated as a corporate entity. With a customer that isn’t able to provide a TRN, the supplier must get alternative evidence in order to get proof that it is a registered business. This is to treat it as the company’s business customer.

Read Also: Goods And Services Eligible For Vat Refund In UAE

IT services for private consumers in the UAE

If VAT is applicable to the private consumer’s location, then VAT should be included in the final sale price. In UAE, a business providing IT services is the one responsible in accounting for VAT for a supply to the Federal Tax Authority.

If you are running or planning to set up an IT business in UAE, VAT Registration UAE can help ensure that you are fully compliant to relevant VAT regulations. If needed, we’ll look into the business that you are running anywhere in the UAE to investigate whether the process of VAT registration in UAE is required or not. Our broad range of VAT services includes VAT return filing and VAT accounting. Call us today for more information.