When suppliers agree to let an online marketplace market and sell their products or services on their behalf, the electronic marketplace—also known as a “digital platform” or “intermediary”—acts as an agent or a facilitator of the transaction.
The idea of the internet marketplace is not well understood and is one that will probably change over time. However, it is the new wave and will stay so for a long time. A typical e-commerce transaction involves a customer, an online marketplace, and a supplier (or merchant in the case of goods).
According to the OECD, online marketplaces account for two-thirds of all cross-border e-commerce sales of commodities. Online marketplaces are becoming a common sales channel for many GCC companies thanks to the pandemic’s explosive expansion of e-commerce in the region.
When running an online marketplace, there are several VAT-related factors to consider. Below, we’ve highlighted a few of these.
Electronic Services
All GCC nations with VAT have specific place of supply regulations for digital services. According to these regulations, local VAT laws apply to electronic services used and enjoyed nationwide. However, there are differences in how these ideas are interpreted throughout the GCC nations. Thus, taxpayers must determine for each one on their own whether their services fall under the purview of the local VAT system.
Risks Associated with VAT
If the supply is not made to a VAT-registered person and the use and enjoyment of electronic services fall under the jurisdiction of the local VAT regime, the non-resident supplier may be obliged to register for VAT. Penalties may apply if these standards are not followed.
Agent vs Principal
Platforms or online markets may act as various product or service providers’ agents. The online marketplace must decide whether it acts as the supplier’s stated or undisclosed agent in this situation. Under the GCC, an undeclared agent is regarded as a principal in obtaining the goods and services from and providing them to the supplier and customer, respectively, under the VAT regimes.
In other words, the online marketplace may occasionally be regarded as both the supplier and the client. The online marketplace should manage the VAT obligations and requirements by establishing explicit contractual terms and conditions.
VAT liability for online marketplaces
Many tax authorities across the world have shifted the responsibility for accounting for the VAT to the online marketplace to prevent the loss of tax revenues caused by suppliers failing to register and charge VAT when required.
This will be a substantial change for online markets, and if it is not properly considered, it could have severe financial repercussions and operational and system-related difficulties. Markets should start thinking about shifting the obligation and how they would make such a change, given the rapid rate at which the region’s tax systems are evolving.
How can AM Audit help?
It might be difficult to run an online marketplace in a tax climate that is rapidly changing. We can guide you through the risks and offer suggestions for improving your business strategy.
