Not very likely. While software is taxable, there is a higher threshold before you are liable.
The current threshold for VAT in the UAE is AED 375,000 (~$102,000).
Yes. You owe tax for the sale of cloud software subscriptions to customers in United Arab Emirates.
Yes. You owe tax for the sale of software downloads to customers in United Arab Emirates.
Yes. You owe tax for the sale of eBooks to customers in United Arab Emirates.
Yes. You owe tax for the sale of digital downloads to customers in United Arab Emirates.
😩🌶️🌶️🌶️ It's *painfully* complicated
To register for VAT in the UAE, you will need to provide some very specific information about your business. For example, you may need to submit your invoices complete with a company stamp – something which a lot of companies aren’t even aware exists.
A lot of the processes have been set up locally, meaning you will need to translate the documents from Arabic into your local language.
As it’s quite a complex (and thorough!) process, it can take months to complete. The Federal Tax Authority (FTA) in the UAE also has strict communication rules – they don’t just respond to your questions via email! You either have to give them a call or complete the prescribed forms to get your question answered.
If you are selling to customers in the UAE, it’s best to start the process well in advance of your sales exceeding the AED 375,000 threshold – otherwise you risk penalties for late registration.
😐🌶️ It's not that complicated
Tax filings in the UAE need to be split in accordance with your sales across the 7 Emirates. This means that you need to be able to identify where your customers are buying from, in order to break down the tax correctly.
To do this, you need to build this logic into your checkout flow or buyer data collection (which can put a burden on your engineering team) or have an internal system that helps you work out how your sales are split.
😩🌶️🌶️🌶️ It's crippling to the business / person
The VAT regulations in the UAE are extremely strict, meaning you’re unlikely to receive any kind of penalty waiver unless you have applied for sales tax from your first taxable sales. It also means that you really need to make sure you’re compliant so you don’t end up in trouble.
The deadlines to appeal against any penalties are strict and non-negotiable. In fact, being late by just 1 day could trigger the reinforcement of the penalties and fines to be collected by the special collection agency.
Late payment of VAT will incur fines of up to 300% of the tax due. You can also receive high fines for failure to register for sales tax and failure to retain accounting records.
Where an Arabic translation of transactions, records and information is requested by the FTA, failing to do so would mean a fine of AED 20,000. There would then also be additional fines for missing the deadline, and for submitting incorrect tax returns.
Penalties for tax evasion can include imprisonment and a penalty of 500% of the tax due.