Issue

• Cabinet Decision No. 91 of 2023 on the Application of Reverse Charge Mechanism on Electronic Devices among Registrants in the State for the purposes of Value Added Tax (VAT) introduces a distinct VAT treatment for certain supplies related to Electronic Devices and requires both recipient and supplier to implement a number of compliance requirements.
• This Public Clarification aims to clarify the legislative updates, goods in scope, and practical implications of the new compliance requirements.

Summary

• Registrants supplying Electronic Devices to other registrants who intend to use them for resale or manufacturing will not account for VAT. Instead, the recipient will account for Due Tax under the reverse charge mechanism.
• If the conditions under Cabinet Decision No. 91 are not met, the supplier must account for VAT, and the recipient may be unable to recover input tax under Article 54(1) of Federal Decree-Law No. 8 of 2017.
• Cabinet Decision No. 91 was issued under Article 48(8) of the Decree-Law.

Detailed Analysis

Scope of Transactions

• Applies only if the recipient intends to resell or use Electronic Devices in production or manufacturing.
• Resale includes both wholesale and retail trade in such devices.
• Devices acquired for business use (e.g., smartphones distributed to employees) without resale or manufacturing intent are excluded.
• Production or manufacturing includes both partial and full assembly (e.g., assembling parts into devices).

Scope of Goods – Electronic Devices

• Applies only to goods defined in Article 1 of Cabinet Decision No. 91: mobile phones, smartphones, computers, tablets, and parts thereof.
• Includes devices from basic mobile phones to advanced smartphones.
• Phones operating via wire or fiber optics are excluded.
• Computers include desktops, servers, hybrid systems, engine control units, etc., regardless of transmission method.
• Tablets are considered hybrid devices between smartphones and computers and are included.
• Standalone e-readers without added features (gaming or browsing) are excluded.
• Further clarification for parts will be issued by the Minister of Finance.

Reverse Charge Mechanism

• Generally, VAT is charged on all taxable supplies in the UAE.
• As an exception, under Cabinet Decision No. 91, a reverse charge mechanism applies if compliance conditions are met.
• Supplier: Does not charge or report VAT on such supplies.
• Recipient: Accounts for VAT and fulfills tax obligations.

Conditions for Application

• Both supplier and recipient must be VAT-registered in the UAE.
• Recipient must intend to resell or manufacture the devices.
• Supplier must retain written declarations from the recipient confirming both registration and intended use.
• Recipient must declare VAT in Box 3 of the VAT return.

Excluded Supplies – Exports

• Direct or indirect exports are not covered by Decision No. 91.
• If zero-rating conditions are met, no output VAT is due.

Compliance Requirements

Recipient Responsibilities

• Before the date of supply (per Articles 25 or 26), the recipient must provide:
  • A written declaration stating the intent to resell or use the devices for manufacturing.
  • A written declaration confirming VAT registration, including registration details.
  • These declarations may be combined in one document.

Supplier Responsibilities

• Before the date of supply, the supplier must:
  • Receive and retain the required declarations.
  • Verify and confirm the recipient is VAT-registered using the FTA’s online TRN verification feature.
  • Issue a valid tax invoice as per Article 59(1)(l) of the Executive Regulation.

Non-Compliance

• If the declarations are not provided:
  • The supplier must account for VAT (unless zero-rating under Article 45(1) and Article 30 applies).
  • The recipient cannot recover input VAT on the supply.
  • Proof of input tax recovery falls on the taxable person under Article 51 of the Tax Procedures Law.

Designated Zones

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Movement of Goods to Designated Zones

• Article 30(3) of the Executive Regulation states that a movement of goods into a Designated Zone from a place in the UAE or a supply of goods to a Designated Zone shall not be considered an export of those goods and can, therefore, not be eligible for the zero-rate as applicable to the exports of goods.

• A supply of Electronic Devices from the UAE mainland to a Designated Zone, or a movement of such goods from the UAE mainland to a Designated Zone, shall not fall under the exception as provided under Article 2(2) of Cabinet Decision No. 91, and all other relevant provisions of this decision will apply.

• Hence, the supply shall also be subject to the provisions of Cabinet Decision No. 91.

Date Cabinet Decision No. 91 Comes into Effect

• To allow Registrants to prepare for the additional compliance requirements, Cabinet Decision No. 91 becomes effective after 60 days from the date of its publication in the Official Gazette.

• Since the Decision was published in the Official Gazette on 30 August 2023, the date it comes into effect is 30 October 2023.

• All supplies of Electronic Devices with a date of supply of 30 October 2023 or later shall be subject to the VAT treatment and compliance requirements as clarified in this Public Clarification.

• This may result in suppliers and registered recipients having to apply two different VAT treatments and meet different compliance obligations within the same VAT reporting period.

Purpose of the Public Clarification

• This Public Clarification issued by the FTA is meant to clarify certain aspects related to Federal Decree-Law No. 8 of 2017 on Value Added Tax and its Executive Regulations and amendments, and Cabinet Decision No. 91 of 2023 on the Application of Reverse Charge Mechanism on Electronic Devices among Registrants in the State for the purposes of Value Added Tax.

• This Public Clarification states the position of the FTA and neither amends nor seeks to amend any provision of the aforementioned legislation. Therefore, it is effective as of the date of implementation of the relevant legislation, unless stated otherwise.