The Ministry of Finance has announced the issuance of Cabinet Resolution 91 of 2023 regarding the Application of the Reverse charge mechanism on Electronic Devices among Registered businesses in UAE under UAE VAT.
- The supply of Electronic Devices to a registered business for the purpose of resale or production/ manufacture of other Electronic Devices shall be subject to a reverse charge mechanism.
- The recipient will have to account for VAT on the value of such supplies.
- Electronic Devices are defined as mobile phones, smartphones, computers, tablets and their parts and components. Under this mechanism, the responsibility for VAT on electronic device supplies (for example, mobile phones, smartphones, computer devices, tablets, and related parts) will shift from the supplier to the recipient if these items are intended for resale or use in electronic device manufacturing.
- In the clarification issued on Wednesday, the FTA outlined the goods covered by the Decision – ‘mobile phones and smartphones’ – which include phones and devices that only have call and/or text functions and those that include additional functions. It applies only to phones and devices that operate through wireless transmission.
- The Cabinet Decision includes all types of computers, such as: personal computers, desktop computers, minicomputers, analogue, digital, hybrid computers, servers, computerised engine control units (ECU) for cars, and other similar devices.
- It excludes: phones and devices running through physical means, such as wire or fibre optic cables.
- The registered recipient will calculate and report VAT on these supplies in their Tax Returns, along with fulfilling relevant tax obligations, FTA said on Wednesday.
The Cabinet Resolution specifies certain conditions and documentation required to be maintained for both the supplier and the recipient:
The FTA clarified that a Decision will be released to specify the standards to be followed while defining the parts and components of Electronic Devices.
The Cabinet Resolution is applicable after 60 days from the date of publication in the Official Gazette.
Summary
**1. ** Background Check:
Understand Cabinet Decision No. 91 of 2023.
Shift in VAT responsibility: supplier to buyer.
Vital for electronic device businesses.
**2. ** Scope Clarified:
Intention to resell or use devices in manufacturing.
Definition of ‘Resell’: Active trading, wholesale, or retail.
Excludes consumption for business purposes.
**3. ** Device Diversity:
What qualifies as ‘Electronic Devices’?
Mobile phones, tablets, computers, and components.
Excludes physically wired devices.
**4. ** Compliance Checklist:
Supplier and buyer requirements.
Buyer declarations: intent and VAT registration.
Implications of non-compliance.
**5. ** Zoning Matters:
Impact of designated zones.
Goods movement within UAE and designated zones.
Crucial for businesses in these zones.
**6. ** Effective Date Alert:
Cabinet Decision in effect from October 30, 2023.
Key date for compliance and transactions.
Stay compliant to avoid penalties.
**7. ** Action Steps:
Review electronic device operations.
Ensure compliance with Cabinet Decision No. 91.
Communication with suppliers and buyers.
Stay updated with FTA guidelines.
Seek professional advice for specific concerns.
**8. ** Document Checklist:
Cabinet Decision 91 of 2023.
Ministerial Decision 26 of 2023.
VAT Public Clarification VAT P034.
The UAE has previously implemented a similar mechanism for other key sectors like gold/ diamond trade and oil/gas trade between registered businesses. The high value and volume of such transactions undertaken means that the reverse charge mechanism will help Electronic Device traders to better manage their cashflows and account for VAT.
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