Domestic reverse charge mechanism for electronic devices traders in the UAE
September 18, 2023
The Ministry of Finance has announced the issuance of Cabinet Resolution 91 of 2023 (issued on 25 August 2023) regarding the application of the reverse charge mechanism on electronic devices among registered businesses in the UAE.
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.
In order to apply this new provision, Cabinet Resolution specifies certain conditions and documentation required to be maintained by both supplier and the recipient.
| Requirements for recipient of electronic devices | Requirements for supplier of electronic devices |
| Provide a written statement to the supplier confirming the purpose of purchasing the electronic devices before the tax point of the transaction. | Retain such written statement received from each recipient. |
| Provide the VAT registration status and documentation to support this. | Verify the VAT registration status confirmed by the recipient in ways approved by the Federal Tax Authority (FTA). |
It is important to note that recipient’s intention should be to resell the electronic devices or use the same for production or manufacture of other electronic devices.
Since the scope of this provision covers electronic components and parts, it is expected that a decision/guide from the FTA will be released to specify the standards to be followed to understand the definition of components and part of electronic devices.
The above mentioned Cabinet Resolution will be applicable after 60 days (i.e. 25 November 2023) from the date of publication in the official gazette.
MBG Remarks:
The decision as per the Cabinet Resolution 91 of 2023 will be a welcome move for the businesses in trading of electronic devices as we have seen a significant amount of trade happening in this sector in the UAE. The UAE has previously implemented a similar approach for other key sectors like gold/diamond trade and oil/gas trade between registered businesses in the UAE. Given the value of transaction involved, domestic reverse charge mechanism will help the traders to manage their cash flows on account of VAT more effectively. This mechanism will also help the FTA to reduce the risk of tax leakages where some instances where VAT has been collected however it has not been remitted to the FTA.
Please feel free to approach our in-house tax experts if you have any queries or need support in evaluating the implication to your businesses due to the announcement of this tax update.
In case you require any assistance, please contact [email protected]
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