Introduction
In a recent development, the Cabinet has passed Cabinet Resolution No. 91 of 2023 introducing VAT reverse charge mechanism on electronic devices.
It should be noted that Article 48(8) of the Federal Decree-Law No. 8 of 2017, which was recently added into the Decree-Law, gives general powers to the Cabinet to decide which goods or services should be subject to the reverse charge mechanism. Cabinet Resolution No. 91 of 2023 signifies the first instance of expanding the scope of the reverse charge rules following the amendment of the Decree-Law.
The new reverse charge will be effective 60 days from the date of its publication in the Official Gazette.
Key Updates
Application
The Cabinet Resolution introduces a reverse charge mechanism on supplies of electronic devices to VAT- registered persons, where the devices are purchased either for resale or to be used to produce or manufacture other electronic devices.
For the purposes of the new rules, “electronic device” is defined “mobile phones, smart phones, computers, tablets, and their parts and components”. The Minister of Finance will be able to issue a decision specifying the standards that shall be followed when defining the parts and components of the electronic devices.
Requirements
The reverse charge mechanism will apply to supplies of electronic devices only where all the below conditions are met:
- The recipient of the electronic device provides the supplier with written statements:
- specifying that the electronic devices are purchased for the purposes of resale or to be used to produce or manufacture other electronic devices; and
- confirming that the recipient is registered for VAT in the UAE.
- The supplier of the electronic device:
- receives and retains the statements provided by the recipient as per the above; and
- verifies that the recipient is registered for VAT.
Where the conditions for the application of the reverse charge are met, the responsibility for the accounting for VAT to the FTA will shift from the supplier to the recipient of the supply. This means that the supplier will no longer charge VAT on the supply to the recipient – instead, the recipient will self-account for this VAT by calculating the amount of output tax on the value of supply and reporting it to the FTA.
It should be noted that the reverse charge will not apply where the supply of electronic devices is subject to 0% VAT as export of goods.