In detail
Pursuant to the Cabinet Decision, the new domestic VAT reverse charge obligation applies to the supply of defined electronic devices within the UAE, specifically mobile phones, smart phones, computer devices, tablets (referred together as "Electronic Devices") and pieces and parts thereof.
In this context, the Ministerial Decision No. 262 of 2023 sets out what is considered "pieces and parts related to Electronic Devices". An item will be considered a "piece or part" of an Electronic Device and therefore subject to the domestic reverse charge rules where it meets any of the following criteria which are to be considered separately:
- It is normally used for the manufacturing or production of the Electronic Devices and is considered necessary for the normal operation of the Electronic Devices.
Public Clarification VATP035 provides examples of pieces and parts that are normally used in the manufacturing or production of Electronic Devices. Examples include:
- Coils, capacitators, couplers, diodes, regulators, resistors, transistors, microchips and other such pieces and parts of smart phones, mobile phones and tablets
- Accelerometers, heart rate monitors, gyroscopes processors, etc. built into smart watches that are an extension of a smart phone or mobile phone or that can connect independently and directly to cellular networks
- Pieces and parts that are part of the hardware of a computer device that meet the criterion, such as the CPU, RAM, hard drive, optical drive, network interface card, etc.
To meet the above criterion, the above pieces and parts must also be required for the normal operation of the devices. For example, this doesn't include decorative elements like crystals or gold leaves applied on certain smart phones during the manufacturing process or jewellery elements applied to smart watches.
Public Clarification VATP035 states that typically internal components of an Electronic Device would be needed for the normal operation of the device, and external input devices (e.g., computer mouse, external output devices, such as monitors and printers. and secondary storage devices, such as external hard disks) would usually not fall under this criterion as these would not be normally used in the manufacturing or production process.
- It is not normally used for the manufacturing or production of the Electronic Devices, but is normally necessary for the operation of the Electronic Devices.
Public Clarification VATP035 elaborates on cases when pieces and parts are not part of the manufacturing or production process but are normally necessary for the normal and even continuing operation of the Electronic Devices and includes:
- Chargers (whether wired or wireless)
- Power cords
- Battery packs
- External monitors
- Mouse and keyboards for desktop computers
- It is a replacement for pieces and parts that meet the criteria in paragraphs (a) and (b) above.
Public Clarification VATP035 merely reiterates that these are pieces and parts that serve as replacements for pieces and parts falling under criteria "a" and "b".
Public Clarification VATP035 further provides examples of pieces and parts that are excluded from the domestic VAT reverse charge rules:
- Pieces or parts that merely enhance the functioning or enjoyment of the Electronic Devices, and therefore are considered not to meet the criteria to be related to Electronic Devices, including but not limited to: external speakers, phone cases and covers, a keyboard with device cover combination for a tablet, headphones and earphones, screen protectors, selfie sticks, device holders, power adapters, pencils for tablets, projectors, USB sticks, dongles, etc.
- SIM cards and other external smart cards (smart cards of the same nature or with the same purpose, for example, R-UIM cards, eSIMs, subscriber cards, etc.)
Actions to consider
Public Clarification VATP035 specifically states that examples given are examples only and it remains the responsibility of the registrants in the transaction to determine if goods supplied meet the criteria for Electronic Devices. Given the specific examples and guidance provided by the FTA, the process of categorizing whether certain goods fall under the definition of Electronic Devices might not always be a straightforward exercise. We therefore recommend that taxpayers verify and assess proactively whether any of the goods supplied or purchased may fall under the category of Electronic Devices, thus triggering the application of the domestic VAT reverse charge mechanism and special compliance requirements.
To speak with us in relation to any of the UAE VAT implications of the Cabinet Decision and Public Clarifications, or any tax matters or issues more generally, please contact one of the team members above.
