Domestic reverse charge mechanism

The United Arab Emirates (UAE) Federal Tax Authority (FTA) has published Cabinet Decision No. 91 of 2023. This introduces a domestic Value Added Tax (VAT) reverse charge obligation concerning the supply of certain electronic devices within the UAE.

The exact effective date for the new rules has not been confirmed yet, but it is anticipated to be around the end of October or the beginning of November this year. This timeline aligns with 60 days after its publication in the Official Gazette.

Under Cabinet Decision No. 91, the term "Electronic Devices" covers “mobile phones, smartphones, computer devices, tablets, and parts thereof.” In due course, the Minister of Finance will release a decision to specify the criteria for determining which items are considered “parts related to Electronic Devices.” This forthcoming guidance will be instrumental in pinpointing with greater accuracy the equipment types that the new rules encompass.

According to the Decision, when a VAT-registered supplier provides electronic devices to a VAT-registered recipient in the UAE, who intends to either resell them or use them in the production or manufacturing of electronic devices, the following rules will apply:

1. The supplier will not be responsible for charging or accounting for VAT on the supply, nor for reporting this in their tax return.
2. The recipient of the Electronic Devices must self-account for VAT on the value of the supplied Electronic Devices under the reverse charge. They will be responsible for all VAT obligations arising from such a supply.

These new rules will not apply to zero-rated exports of electronic devices.

The conditions set under the Decision for applying VAT using the reverse charge mechanism are outlined as follows:

1. The recipient of Electronic Devices must provide a written declaration, indicating the purpose of the supply they are receiving and confirming their registration for VAT.
2. The supplier of the Electronic Devices should retain these declarations and verify the VAT registration status of the recipient.

Deloitte comment 

This new compliance requirement will have broad cross-industry application and is not confined exclusively to businesses operating in the technology sector. For example, retailers selling electronic devices will need to adopt new VAT processes and accounting in respect of the purchase of electronic devices for resale. Also, corporate groups with centralized procurement functions who distribute and recharge the cost of electronic devices to other group entities may be affected. We recommend that businesses carefully consider these new rules and identify any affected transactions types, particularly those which are not “core business”, in order to understand the steps they need to take to comply going forwards.

Businesses involved in the supply of Electronic Devices, as defined above, should assess the implication of this new Decision on their supplies. We have a team of VAT specialists in the UAE who can assist you in understanding the impact of this new rule and helping you to maintain compliance with its requirements. 

For more information, please contact any of the individuals listed below or reach out to your designated Deloitte representative.