The Value Added tax (VAT) is applicable in cases of taxable supplies made by the seller to the buyer. The responsibility to charge and discharge VAT to the Authorities generally lies with the seller. However, the UAE VAT Law provided for certain provisions on the applicability of Reverse Charge Mechanism (RCM).
RCM, as a concept, shifts the responsibility of reporting and discharging any VAT liability on the recipient of goods or services rather than the seller. While RCM generally applies in cases of cross border transactions, the UAE VAT Law has specified certain categories of goods on which domestic RCM applies.
Legislative Background:
Article 48 (8) of the VAT Law specifies that the Cabinet may issue a decision specifying other Goods or Services that are subject to the reverse charge and specify the relevant conditions and provisions.
In accordance with Article 48 (8) of VAT Law, Cabinet Decision 91 has been issued, extending the applicability of RCM on Electronic Devices among Registrants in the State for the purposes of VAT
Key Aspects of Clarification:
The FTA has issued a Public Clarification highlighting the key aspects of the Cabinet Decision no 91.
The key aspects of the clarification are summarised below.
| Key Aspects | Particulars |
| Effective Date | The Decision was published in the Official Gazette on 30 August 2023 and the effective date will be 30 October 2023. |
| Summary |
a. Where a supplier, registered for VAT in the UAE, provides Electronic Devices to a Recipient, registered for VAT in the UAE (i.e. both the supplier and the recipient shall be registered for VAT on the UAE) and b. The Recipient had the intention to resell the Electronic Devices or use them to produce or manufacture Electronic Devices and c. The supplier retains a written declaration from the Recipient confirming conditions a and b d. Registrants supplying Electronic Devices to other registrants who intend to use these Electronic Devices for resale or manufacturing, will not account for VAT on such supplies, and Due Tax on the supplies will be accounted for under a reverse charge by the Recipient of Goods (“Recipient”). |
| Electronic Device |
a. Mobile Phones and Smart Phones: Will include phones that have only phone/text functions and also smart phones. Does not include phones operating through physical means such as wire or fabric optic canbles. b. Computer Devices: personal computers, desktop computers, minicomputers, analog, digital and hybrid computers, server computers, computerised engine control units (“ECU”) for cars, and other similar devices. c. Tablets: wireless, portable personal computers with a touchscreen interface, being a hybrid in form and with functionalities between a smart phone and a computer device. d. 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, are not included under the definition of Electronic Devices e. Parts and pieces of Electronic Devices |
| Analysis of Condition
“For resale or to use in production or manufacturing” |
Understanding the term “resale”
Understanding the term “production or manufacturing”
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While the Public Clarification relates only to specific charges and applies only for banks and exchange houses, it has highlighted a very important compliance requirement of self-invoicing for import related transactions.
The requirement to self-invoice applies in all cases where a taxpayer imports goods or services from overseas. The taxpayer is thus required to create and maintain a tax invoice on itself in order to fulfil the compliance requirement of the VAT law. It is important to note that the failure to meet the requirement may result in disallowance of the VAT input claims for RCM transactions, thereby creating a negative cash impact for the taxpayers for an otherwise tax neutral transaction