In more detail
The term "Electronic Devices" specifically includes “mobile phones, smartphones, computer devices, tablets, their parts and components / spare parts”.
The FTA has issued Public Clarification VATP034 on which clarifies the following:
- “Resell” is understood as being part of the business of the recipient of the electronic devices to trade in such devices (at wholesale of retail level).
- “Producing or manufacturing” of electronic devices includes partial or full production.
- “Mobile phones and smartphones” must be understood in a broad sense and the scope for these ranges from mobile phones that only have call and/or text functions to smartphones that include many additional functions, and is restricted to phones which operate through wireless transmission.
- Computer devices is not restricted to those operating through wireless transmission. The definition covers computer devices in a broad understanding and includes personal computers, desktop computers, minicomputers, analog, digital and hybrid computers, server computers, computerized engine control units (ECU) for cars, and other similar devices.
- “Tablets” are in essence wireless, portable personal computers with a touchscreen interface, being a hybrid in form and with functionalities between a smartphone and a computer device. This does not extend to E-readers, marketed as such, without any other features such as gaming functionalities or web browsing, and that may include different hardware and software compared to tablets.
A Ministerial Decision No. 262 of 2023 was issued on 25 October 2023, effective 30 October 2023, which sets out what is considered “pieces and parts related to Electronic Devices”. An item will be considered a “piece of part” of an electronic device and therefore subject to the domestic reverse charge rules where it meets the following criteria:
- It is normally used for the manufacturing or production of Electronic Devices, and are considered necessary for the normal operation of Electronic Devices including replacements; and
- It is not normally used for the manufacturing or production of Electronic Devices, but are normally necessary for the operation of Electronic Devices, such as chargers, power cords, battery packs and other similar Pieces and Parts, including replacement parts.
As such, the domestic reverse charge will not apply to pieces or parts which enhance the functioning or enjoyment of an electronic device but are not necessary for the electronic devices' operation or to activate its features (e.g., headphones, SIM Cards or external smart cards or any other item with similar purpose).
In line with Cabinet Decision no.91 of 2023, when a VAT-registered supplier provides electronic devices to a VAT-registered recipient in the UAE, who intends to either resell them or use them in the production or manufacturing of electronic devices, the following rules will apply:
- The supplier will not be responsible for charging or accounting for VAT on the supply, nor for reporting this in their tax return.
- The recipient of the Electronic Devices must self-account for VAT on the value of the supplied Electronic Devices under the reverse charge. They will be responsible for all VAT obligations arising from such a supply.
These new rules will not apply to zero-rated exports of electronic devices as these are not viewed as domestic supplies. It is important to note that the movement of goods from the mainland UAE to a designated zone will also fall within the ambit of the domestic reverse charge rules.
The conditions set under the Cabinet Decision for applying the domestic VAT reverse charge mechanism are as follows:
- The recipient of Electronic Devices must provide a written declaration, indicating the purpose of the supply they are receiving (whether it is for resale or manufacturing) and confirming their VAT registration.
- The supplier of the Electronic Devices should retain these customer declarations and verify the VAT registration status of the recipient via FTA-approved methods (VATP034 sets out that the approved method is under the “TRN verification” tab on the right side of the FTA homepage).
In terms of the Public Clarification VATP034, where the recipient fails to provide the necessary declarations to the supplier where the electronic devices will be used for resale or manufacturing purposes, it will not be eligible to recover the input VAT incurred in accordance with Article 54(1)(a) and (b). The VAT incurred will become a VAT cost to the recipient.
To speak with us in relation to any of the proposed changes to the UAE VAT, or any tax matters or issues more generally, please contact one of the team members above.
