March 12, 2024

UAE’s Tax Flip: Unlocking the Mystery of the Reverse Charge Mechanism

The United Arab Emirates recently implemented a new ruling regarding the VAT on certain electronic products bought and sold in the country. The changes took effect on 30 October 2023.
Share

The United Arab Emirates has recently implemented a new ruling regarding the VAT on certain electronic products bought and sold in the country. The changes have been in effect from 30 October 2023. Need a quick catch-up? No worries, we’ve got your back. Here’s what you need to know about the Cabinet Decision introducing a domestic value-added tax (VAT) reverse charge obligation concerning the supply of defined electronic devices within the UAE. But first, let’s get some of the jargon out of the way. 

  • UAE Federal Tax Authority (FTA): The government body responsible for tax-related matters in the United Arab Emirates.
  • Cabinet Decision No. 91 of 2023: The UAE government made a decision (Decision No. 91) in 2023 specifically related to taxes.

Unlocking the Mystery of the Reverse Charge Mechanism

To best understand the recent VAT rules, it’s essential first to clarify what constitutes ‘electronic devices.’ According to the FTA, ‘Electronic Devices’ specifically include “mobile phones, smartphones, computer devices, tablets, their parts, and components / spare parts.” Concerning their VAT treatment, the FTA has issued Public Clarification VATP034, which clarifies the following:

The clarifications:

  • Resell: The recipient of the electronic devices is seen as trading these devices at wholesale or retail levels.
  • Producing or manufacturing electronic devices includes partial or full production.
  • The term “Mobile phones and smartphones” should be interpreted broadly. It covers devices ranging from basic ones with call and text functions to more advanced smartphones with multiple features. This category explicitly includes phones that operate using wireless transmission.
  • Computer devices are not restricted to devices operating through wireless transmission. They can include personal computers, desktop computers, minicomputers, analog, digital, hybrid computers, server computers, computerized engine control units (ECU) for cars, and other similar devices.
  • “Tablets” are considered wireless, portable personal computers with a touchscreen interface, being a hybrid in form and with functionalities between a smartphone and a computer device. 

Now that the essential understandings have been clarified let’s look at some of the main points from Ministerial Decision No. 262 of 2023 and its implications:

Ministerial Decision No. 262 of 2023

This decision was made by a ministerial authority in the United Arab Emirates and concerns specific rules concerning electronic devices and VAT (Value Added Tax).

Although officially announced on 25 October 2023, its rules and regulations will start being applied from 30 October 2023. Some of the most significant takeaways include the following: 

Definition of “Pieces and Parts related to Electronic Devices”: 

The decision clarified and confirmed which exact components or parts are considered essential for electronic devices, including items used in manufacturing or regular operation of electronic devices and necessary replacements. However, it also includes certain items not used in manufacturing but essential for operating electronic devices, such as chargers, power cords, battery packs, and similar parts, including replacements.

Application of Domestic Reverse Charge Rules:

When a VAT-registered supplier sells electronic devices to another VAT-registered entity in the UAE for resale or manufacturing electronic devices:

  • The supplier doesn’t need to charge or account for VAT on the supply.
  • The recipient (buyer) needs to account for VAT under the reverse charge and is responsible for fulfilling VAT obligations related to this supply.

Certain items like headphones, SIM cards, or external smart cards, which enhance the functionality of electronic devices but aren’t necessary for their operation, are excluded from these rules. Further exceptions to the rule apply regarding zero-rated exports of electronic devices. These are exempt from these rules because they are not considered domestic supplies. 

In essence, this decision outlines how VAT rules apply to the sale of electronic devices in the UAE between VAT-registered businesses, defining which parts are subject to reverse charge and establishing conditions and consequences for compliance or non-compliance with these rules.

VAT refund Tool kit

World Icon

Claimable countries & VAT rates

Discover which countries your business can reclaim from with our country guides.

View guide ›

Calculate Icon

VAT potential calculator

Evaluate your VAT reclaim potential based on your annual Travel & Entertainment expenditure.

Calculate now ›

Invoice Icon

Invoice compliance checklist

Navigate the intricacies of your invoices. Use our interactive tool to find out what is required to optimise your claims.

Calculate now ›