UAE VAT: Revised VAT Treatment of Electronic Devices Supply

To support the local business community and foster economic growth, the Federal Tax Authority (FTA) has issued Cabinet Decision No. 91 of 2023 (the Decision) on Issued 25 August 2023, which is effective from 60 days from the date of its publication in the Official Gazette; and its publication date is 30 August 2023. Later, VAT Public Clarification No. VATP0034 issued by the FTA.

?The Decision requires that the Value Added Tax (VAT) registered suppliers of electronic devices should not charge VAT to the VAT registered customers where the customer intends to resell the electronic devices or use the electronic devices for manufacturing or production of electronic devices. Resale means the sales of the electronic devices by the wholesaler and retailer.?

After the crude oil and gold sectors, the supply of electronic devices is the third industry where VAT registered suppliers are granted the advantage not to charge VAT, provided that all relevant conditions are met.

To enjoy this privilege, the VAT registered supplier must obtain a declaration from the customer before selling electronic devices. This declaration should state that the customer intends to resell the devices or use them for partial or complete manufacturing or production of other electronic devices. Additionally, the supplier must ensure that the customer is registered for VAT purposes and obtain one combined or two separate declarations to this effect. It is the supplier's responsibility to verify the customer's VAT registration status, which can be verified from the FTA portal.

While supplying the electronic devices; the eligible suppliers should not charge VAT, but the customer will account for the VAT by applying Reverse Charge Mechanism (RCM). Under the RCM, customers will pay the related VAT on behalf of the suppliers by reporting the output tax in the box no. 3 of the return; and at the same; if all related conditions to claim input tax are being fulfilled, customer will claim input tax by adding it in the box no. 10 of the return.

If the recipient of the electronic devices fails to furnish the supplier with the declaration of intent and the declaration confirming their status as a registrant prior to the supply date, the supplier is obligated to charge output tax on the transaction. Furthermore, the recipient cannot consider the electronic devices as being utilized or intended for use in the production of taxable supplies or supplies made outside the UAE, which would have been taxable had they been conducted within the UAE. If the electronic devices are not employed or intended for use by the recipient in activities that allow for the recovery of input tax, they are unable to reclaim said input tax.

The above decision is not applicable where the electronic devices are being exported; and it will as usual be treated as zero-rated supply and it will be reported in the box no. 4 of the return. However, the supply of electronic devices from mainland to the designated zone shall not be considered export of goods; and it will not be eligible for the zero-rated export of electronic devices.

VAT registered suppliers may be supplying electronic devices to the VAT registered customers who has intention to resell; or use them to manufacture/produce electronic devices; and others, this will result two different compliance obligations for the suppliers and customer in the same reporting period; and both of the parties are required to do the compliance accordingly.

Electronic devices the mobile phones, smart phones, laptops, computers, tablets etc.; and its pieces and parts. Mobile phone that can be operated through the wireless are in the scope of this Decision. Computers devices comprised computer devices in a broad understanding and includes personal computers, desktop computers, minicomputers, analog, digital and hybrid computers, server computers, computerized engine control units 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 smart phone and a computer device.

The parts that are being used in the manufacture or production of electronic devices or being resold are also part of the electronic devices; and the Minister will issue the decision that would be carrying the criteria of pieces and parts related electronic devices.

Since the Decision was published in the official gazette on 30 August 2023, so its effective date is 30 October 2023. The wholesaler and retailer of electronic devices should get the declarations from the customer; and adopt the proper tax position starting from October 30, 2023.

Mahar Afzal, a managing partner at Kress Cooper Management Consultants, has shared a personal opinion which does not represent the official stance of Khaleej Times. If you have questions or require further clarification, contact Mahar at?[email protected] .