United Arab Emirates: What constitutes 'parts and pieces' related to Electronic Devices? Public Clarification VATP035 clarifies

In brief

To support the practical application of the recently introduced domestic Value Added Tax (VAT) reverse charge mechanism under Cabinet Decision No. 91 of 2023 ("Cabinet Decision") (please read our tax alert on this topic here), the UAE Federal Tax Authority (FTA) have issued (i) Ministerial Decision No. 262 of 2023 aimed to specify the criteria that should be followed in determining the pieces and parts related to electronic devices, and (ii) the Public Clarification VATP034 aimed to clarify the purpose of the legislative updates, the goods in scope and the practical implications of the compliance requirements introduced.

Most recently, the FTA has published Public Clarification VATP035 which sets out further clarifications and useful examples on what constitutes "pieces and parts related to Electronic Devices" for the purposes of application of the Cabinet Decision.


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:

  1. 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.

  1. 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
  1. 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.

Copyright © 2024 Baker & McKenzie. All rights reserved. Ownership: This documentation and content (Content) is a proprietary resource owned exclusively by Baker McKenzie (meaning Baker & McKenzie International and its member firms). The Content is protected under international copyright conventions. Use of this Content does not of itself create a contractual relationship, nor any attorney/client relationship, between Baker McKenzie and any person. Non-reliance and exclusion: All Content is for informational purposes only and may not reflect the most current legal and regulatory developments. All summaries of the laws, regulations and practice are subject to change. The Content is not offered as legal or professional advice for any specific matter. It is not intended to be a substitute for reference to (and compliance with) the detailed provisions of applicable laws, rules, regulations or forms. Legal advice should always be sought before taking any action or refraining from taking any action based on any Content. Baker McKenzie and the editors and the contributing authors do not guarantee the accuracy of the Content and expressly disclaim any and all liability to any person in respect of the consequences of anything done or permitted to be done or omitted to be done wholly or partly in reliance upon the whole or any part of the Content. The Content may contain links to external websites and external websites may link to the Content. Baker McKenzie is not responsible for the content or operation of any such external sites and disclaims all liability, howsoever occurring, in respect of the content or operation of any such external websites. Attorney Advertising: This Content may qualify as “Attorney Advertising” requiring notice in some jurisdictions. To the extent that this Content may qualify as Attorney Advertising, PRIOR RESULTS DO NOT GUARANTEE A SIMILAR OUTCOME. Reproduction: Reproduction of reasonable portions of the Content is permitted provided that (i) such reproductions are made available free of charge and for non-commercial purposes, (ii) such reproductions are properly attributed to Baker McKenzie, (iii) the portion of the Content being reproduced is not altered or made available in a manner that modifies the Content or presents the Content being reproduced in a false light and (iv) notice is made to the disclaimers included on the Content. The permission to re-copy does not allow for incorporation of any substantial portion of the Content in any work or publication, whether in hard copy, electronic or any other form or for commercial purposes.