Value Added Tax (VAT) constitutes a significant component of the UAEs’ tax framework and is applicable across various sectors, including telecommunications. Telecommunication services encompass voice, data, and internet services transmitted via both mobile and landline networks. These services are broadly classified into personal and business communications. This article explains the UAE VAT framework as it pertains to telecommunication services, addressing key aspects such as the applicable tax, invoicing requirements, exemptions, and the compliance obligations of telecommunication service providers and operators.
VAT Taxability on Telecommunication Services in UAE
Telecommunication services are taxed based on where the service is being consumed, who consumes the service, and whether the service is locally or externally being provided.
Definition of Telecommunication Services
Telecommunication services mean any service that is used for the purpose of receiving, broadcasting, or sending signals, messages, images, or sounds through wire or wireless facilities.
Few of these examples include landline and mobile phones, internet data, message service (SMS/MMS), satellite communications, and digital broadcasting.
Rate for VAT Telecommunication Services
All telecommunication services which are provided in the UAE will be taxed at the rate of 5% general VAT. There are a few international and roaming services for which there will be different treatment for tax.
Who Must Register for VAT
Telecom service providers like mobile network operators, internet service providers (ISPs), and digital communication platforms will need to register for VAT if their taxable turnover during a year exceeds AED 375,000.
Irrespective of the fact that a telecom company might be based in a UAE Free Zone, it is still subject to the VAT regulations.
Also Read: Guide to VAT Registration in the UAE
How funds are Collected on VAT Telecommunication Services
VAT is levied on customers when purchasing telecom services such as mobile subscription, internet plans, and international roaming plans. Telecom operators are required to provide VAT-compliant invoices and collect and remit VAT to the FTA in periodic VAT returns.
Types of Telecommunication Services and VAT Treatment
Domestic Telecommunication Services
Definition:
- Domestic telecommunication services include calls, SMS, and data consumption in the UAE.
- These consist of prepaid and postpaid mobile subscription, home internet subscription, and fixed-line telephony services.
VAT Treatment:
- Local telecommunication services are subject to 5% VAT.
- VAT should be clearly displayed on invoices and levied on customers when invoiced by the service providers.
International Telecommunication Services
Definition:
- International services include calls, messaging, and internet use including communications outside the UAE.
- Includes international calls, foreign number SMS, and mobile roaming services abroad.
VAT Treatment
- When the service is consumed in the UAE, it has a 5% VAT.
- When the service is used outside the UAE (for example, a UAE resident making use of roaming facilities in another country), VAT treatment is subject to the tax rules of the host country.
- There are certain B2B cross-border transactions, which are zero-rated for VAT under specific conditions.
Prepaid and Postpaid Telecommunication Services
Prepaid Services:
- Prepaid mobile, data internet packages, and call/SMS packages require payment in advance by consumers.
- VAT is being paid while purchasing and included within the terminal cost.
Postpaid Services:
- Postpaid mobile and data plans allow consumers to avail themselves of the service first and pay later through billing monthly.
- VAT is being applied on the billing amount itself once every billing cycle.
VAT Compliance for Prepaid and Postpaid Services
- Evidently, service providers need to issue tax invoices with VAT amounts.
- Companies utilizing postpaid services for corporate communication can recover input VAT when they are registered for VAT.
Mobile Roaming Services
Definition:
- Mobile roaming services allow customers to use mobile networks outside the UAE while overseas.
- The services include voice calls, SMS, and mobile data access on foreign networks.
VAT Treatment
- 5% VAT is applied if roaming services are used within the UAE.
- If roaming is being done outside the country, VAT can be exempted through tax treaties with foreign countries and local taxation acts.
- The businesses that offer roaming services should determine the place of supply of VAT.
Satellite and Digital Communication Service
Definition:
- The telecommunication services utilizing digital communication are satellite broadcasting, VoIP (Voice over Internet Protocol), cloud computing telecommunication services, and video conferencing.
- These services are used the most by organizations and individuals for information and data transfer beyond the UAE.
VAT Treatment:
- When the service is provided to a UAE customer, 5% VAT is levied.
- When provided to a foreign business beyond the UAE, the service may be zero-rated VAT if certain conditions are met.
VAT Requirements for Telecommunication Service Providers
Registration of Telecommunication Companies
- Telecommunications businesses providing services in the UAE must register for VAT if taxable turnover for a year is more than AED 375,000.
- VAT registration enables service providers to charge, collect, and pay VAT to the FTA
Issuance of VAT-Compliant Invoices
Service providers must issue detailed tax invoices with:
- Provider’s Tax Registration Number (TRN).
- Distinct identification of VAT charges on the amount.
- Date of invoice, customer, and description of services.
Filing VAT Returns
- VAT returns should be submitted quarterly or monthly, depending on the firm’s VAT liability.
- Service companies should report VAT recovered from clients as input VAT and business expense output VAT.
Record-Keeping and Audit Compliance
- Telecom businesses should keep VAT records in detail, invoices, and account statements for a period of at least five years.
- The FTA performs tax audits to verify VAT compliance and can enforce fines on tax return mistakes.
Maximizing VAT Recovery for Business
Helping business clients reclaim input VAT on business telecommunication expenses.
Streamlined VAT Documentation and Invoicing Processing
Enabling telecom operators to issue proper tax invoices and VAT statements.
VAT Filing and FTA Audit Support
Supporting telecom businesses to file VAT returns in accordance with mutually agreed timetables and fulfilling FTA audit needs.
Conclusion
To effectively determine VAT taxability in UAE and ensure compliance with VAT law, businesses are advised to seek the expert services of premier VAT Registration UAE. Contact us today and we shall be glad to assist you.
FAQs for VAT Telecommunication Services in UAE
Q1. What is the rate of VAT telecommunication services?
- All domestic telecommunication services in the UAE like mobile calls, landline services, internet plans, and messaging services fall under the regular 5% VAT rate.
- International services and roaming charges may receive different treatment based on destination for usage and corresponding taxing jurisdictions.
Q2. Are postpaid and prepaid mobile services taxed independently under UAE VAT?
- No, prepaid and postpaid mobile services are outside the ambit of 5% VAT.
- In case of prepaid services, the VAT is already paid at the time of buying.
- In case of postpaid services, VAT is billed monthly and only once at the end of the month.
Q3. Is VAT applicable on international roaming services?
- UAE resident using roaming services in UAE will be charged 5% VAT.
- VAT can be zero-rated, or subjected to foreign tax jurisdiction of the destination country, if roaming service is made outside the UAE.
- Firms should decide on the right place of supply in order to impose VAT.
Q4. Are telecommunication services VAT recoverable by companies?
- Businesses with VAT registration services are entitled to recover input VAT on business telecommunications services such as company mobile plans, internet, and communication devices.
- Companies must follow proper invoicing and FTA compliance to get VAT refunds.
Q5. What are telecom service providers’ VAT invoicing requirements?
Service providers should issue VAT-compliant invoices with:
- Provider’s Tax Registration Number (TRN).
- VAT charges detailed breakdown.
- Customer details, invoice date, and service details.
VAT invoices must be kept for a period of at least five years for audit and compliance purposes.
