Social Influencers – UAE VAT Taxability
“Yeh hum hai. Yeh humari car hai. Aur yeh humari Pawari ho rahi hai.” This video is the latest trending viral video. If you have not seen it till now, google with above statement and you will find it. This new era of Gen Z, which caters to children born on or after 1997; have made internet sensational and created a new opportunity segment for themselves which is called Social Influencers.
Social Influencers are social media users who are followed by a large number of followers; thereby giving them power to persuade them with their views. These Social Influencers have started creating a big impact and have strength to promote or demote any brand, product or company, which brings in substantial change in their sales growth. This has been realized by companies/owners and therefore these social influencers are paid for their services in kind and/or cash by the companies for promoting their brands, products and company.
The rise of this new kind of service segment made me write this article on understanding VAT Impact on services provided by social influencers.
Let us begin with the easiest part first. Social influencers can act Suo moto or on direction of someone. When social influencer acts Suo moto, without any vetted interest and is not receiving any consideration in cash or kind from anyone; there is only supply of services by the influencer without receiving any consideration. If you are presuming why such cases will exist, think about influencers who are nationalists. They have no hidden agenda but just the objective to promote and safeguard the larger interest of the nation. This will not qualify for VAT. This is not because of the fact that this is in interest of the nation, as law never works on emotion but on facts and regulations. As per the regulations, VAT can primarily be triggered on any transaction when there is supply of goods and service against a consideration, subject to other provisions. Since this transaction lacks consideration, VAT will not get triggered.
Now let us move ahead and understand other scenarios but to ensure that we do not complicate the understanding, will restrict the nature of taxability based on UAE VAT laws and regulations.
Scenario 2: A Social Influencer is called by a retail chain in UAE to visit their stores and post ravishing posts about the retail chain for next 3 months in an interval of 15 days each. For this, social influencer demanded X amount. Now this transaction comes under the ambit of VAT, but the taxability of this transaction can only be decided based on residential status of Social Influencer.
Assuming Social Influencer is resident in UAE and has the required license to carry out these services. Further, he or she is already registered with the authority for VAT; then the social influencer is required to raise invoice with VAT at 5% on this retail chain.
On the other hand, if the social influencer is not registered with the authority for VAT, assuming his or her turnover has not crossed the required threshold; the influencer need to re-assess his eligibility for registration with the authority based on this transaction and applicable threshold. Based on this assessment, influencer should proceed with either registration or issue of invoice without VAT. The retail company is not required to do anything except ensuring that influencer is resident of UAE with proper license to operate and declaration that he or she is not required to register with the authority due to turnover threshold.
Now let us take another leap and assume social influencer is not resident in UAE and operates out of a country outside UAE. The visit to the retail stores will be over video call and photographs will be shared over email. Based on that influencer will act and post. Now in this transaction, both parties need to take caution; else the chances of violation are high.
Social Influencer need to check the tax registration status of the retail store and ensure that he or she verifies the tax registration of the company in UAE. This verification process is easy and can be done by the influencer online. The same needs to be properly documented and accordingly issue invoice in line with VAT law of the country where he or she resides. He or She is not required to charge UAE VAT on such invoice. The retail store on the other hand, need to document the resident status of the influencer backed by proper documents and without fail need to report the same under Reverse Charge Mechanism while filing their VAT return. This sometimes company fail to report, and this may result in incomplete reporting of VAT.
However, let’s assume when social influencer checked for tax registration status of the retail store; store came back and reverted that they are not registered for UAE VAT as they are within registration threshold limit. In this case, social influencer has to take extra caution to avoid himself or herself from causing tax violation. He or She has two alternative routes.
The first one which is easy but will put dent in the pocket of the influencer. The influencer can connect with a marketing firm which is resident in UAE and is registered for VAT in UAE. After connecting, they can enter into a three-party agreement; where retail company will be contracting marketing company resident in UAE for these services and payments will be made to this marketing company. In parallel, marketing company will opt for services of this influencer and it will be responsibility of marketing company to pay for the services of the influencer.
In this case, the influencer is dealing with a party tax-registered in UAE and the taxability and documentation will be same as discussed above. Similarly, retail company is dealing with a party resident in UAE and therefore, tax treatment will be as discussed at the start i.e., marketing company will raise invoice at 5% on this retail chain. Though, the transaction and taxability flow in this approach is fine but undoubtedly there is a dent in the pocket of the influencer as they will be sharing a part of their fees with this marketing company.
The alternative approach can be that the social influencer registers himself/herself for tax in UAE and accordingly issue an invoice with 5% UAE VAT to the retail chain. Though this route seems simple and also dent is only to the extent of getting tax registered, but this will increase regular compliance on part of the influencer. Therefore, the influencer needs to take a judicious call before entering into an agreement with a party resident in UAE which is not registered for VAT.
If the discussion above looks complex, trust me we actually have not entered into complexity. The above paragraphs are just the foundation which need to be cemented properly because now we will take leap of faith and discuss the real-life scenarios of transactions between influencers and corporates
Ahmed is a social influencer based out of UAE, who has around 1 million followers and he is contacted by a UAE restaurant to visit and posts reviews on a well-known platform. The terms of understanding were that he can visit along with a friend and taste the food to the extent of AED 400, and nothing will be charged to him. In return, he will post reviews and photographs on the agreed platform.
In the above case, the first question is whether this a taxable supply, that is, whether consideration flowing for the services of Ahmed. The answer is yes, in kind, in form of free food. Now if consideration is flowing; it becomes a taxable supply and assuming Ahmed is a registered tax person in UAE, he will have to raise invoice with 5% VAT on the restaurant. The restaurant in turn will raise an invoice with 5% VAT for food supply to Ahmed. Since both invoices are of same value, they can either exchange AED 500 with each other or consider respective invoices paid.
Either we can follow the above stated process or alternatively we can skip it and consider this as a barter transaction of equal value, and thereby no need to issue any invoice by either party for services. The authority understands the unwanted wastage of resources in above process and therefore provides this alternative. But the only pre-condition is, that the transaction is barter and of truly equal value.
In case, anyone is thinking of triggering deemed supply provision on the restaurant due to free supply of food, please restrict your thoughts. There was no free supply, rather it was a barter transaction where supply of food took place against supply of services by social influencer. The issue of invoice and collection of payment could have been done by either party, but this would have not resulted in any additional value as explained above and therefore relaxed approach was taken, which authority has also permitted.
Ameena is a social influencer who is resident of Canada and has around 5 million followers. He is contacted by a multinational company who has a presence across UA, Canada, Middle East and Africa. The terms of understanding are that Ameena will be promoting their brands by tagging her UAE followers and UAE locations where their brands are available. The agreement is between Ameena and an entity of this MNC which is registered in Canada. In return, Ameena was promised one month supply of the brand she is promoting.
By now after reading the scenario, one thing you must be saying that the consideration is there in kind by way of free one month supply i.e., Ameena is providing a taxable supply but for me the bigger question is whether this is UAE taxable supply. The answer is no. The supplier or influencer is not resident of UAE and the party with whom she is entering into an agreement is also not UAE registered entity. By just tagging UAE residents and UAE locations on post, does not make her supply taxable in UAE. She is not required to be worried in terms of taxability from UAE perspective, but she may have to look at the transaction from Canada tax perspective. Similarly, the Canada entity need to look into input tax recoverability of this transaction from Canada Tax input tax recoverability perspective. UAE has no role to play unless the facts change drastically dragging in any local entity into the transaction.
Before I indulge on the facts of the case, let me clarify that I will not decode this case but will leave it for you to decode based on your understanding of the above article because you learn swimming when you dive into the pool and not when you watch from shore.
Jamal is a social influencer who is resident of UAE and has around 10 million followers. He is contacted by a hotel in UAE. The terms of understanding are that Jamal will be promoting their hotel on his blogs and other known social sites for next 3 months. To enable him to post, he was given 3 day and night stay including buffet breakfast and dinner in the hotel for which he is not required to pay. What will be the tax implication? Decoding will not be complex if we break the transaction into simpler transaction and then evaluate as learnt in the article above.