GCC Indirect Tax Weekly Digest

KSA developments

 ZATCA announces criteria for selecting taxpayers in the eighth wave of e-invoicing 

The Zakat, Tax, and Customs Authority (ZATCA) in the Kingdom of Saudi Arabia (KSA) announced the selection criteria for resident taxpayers participating in the upcoming eighth wave of the e-invoicing integration phase. 

Key considerations: 

• Resident taxpayers with taxable revenue exceeding SAR 40 million (c. $10.6m) as reported in the Value Added Tax (VAT) returns for the calendar years 2021 or 2022 are required to integrate their e-invoicing systems with ZATCA for clearance and/or reporting of e-invoices.
• Integration for the eighth wave of resident taxpayers is scheduled to go live on the ZATCA Fatoora Portal starting from 1 March 2024. This provides these taxpayers with at least six months to ensure compliance with the integration phase requirements.

Based on past experience, we expect ZATCA to formally notify the selected taxpayers about the eighth wave timeline. Taxpayers who were not included in previous waves should therefore plan ahead. Timely integration with ZATCA requires substantial IT and human resources, making proactive preparation crucial for a smooth compliance process.

UAE developments

FTA introduces a Domestic Reverse Charge Mechanism on Electronic Devices 

The United Arab Emirates (UAE) Federal Tax Authority (FTA) through Cabinet Decision No. 91 of 2023 introduced a domestic Value Added Tax (VAT) reverse charge obligation concerning the supply of certain electronic devices within the UAE. The FTA subsequently published Public Clarification VATP034 to clarify the purpose of the updates in the legislation, the goods in scope and the practical implications of the compliance requirements introduced.

Overview

From 30 October, VAT registered businesses supplying qualifying Electronic Devices to other VAT registrants who intend to use these devices for resale or certain manufacturing purposes, should not charge or account for VAT on such supplies; instead the VAT on the supplies will be self-accounted for under the reverse charge by the recipient of the goods. The following rules will apply:

• The supplier will not be responsible for charging or accounting for VAT on the supply, nor for reporting this in their tax return.
• 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.

“Resale” is to be understood as being a part of the business of the recipient of the Electronic Devices to trade in such devices. A recipient who is acquiring the Electronic Devices for use in his business, other than for production or manufacturing, is therefore not subject to the new provisions.

One of the requirements for the Reverse Charge to apply is that the recipient of the Electronic Devices must provide the supplier with a written declaration before the supply is made. This declaration should state that the recipient is VAT registered, provide their Tax Registration Number and also confirm whether the recipient intends to either resell the goods or use them in the production or manufacture of Electronic Devices. 

If this declaration is not provided then the Supplier should account for output tax on the supply and the recipient will not be able to recover any VAT charged to them in respect of their acquisition of the Electronic Devices.

Definition of Electronic Devices

Under Cabinet Decision No. 91, the term "Electronic Devices" covers “mobile phones, smartphones, computer devices, tablets, and parts thereof.” The Public Clarification provides further details on the definition of Electronic Devices.

In this context “mobile phones and smart phones” are interpreted in a broad sense, including phones that only have call and/or text functions, as well as smart phones that include many additional functions. However phones operating through physical means such as wire or fiber optic cables, do not fall within the scope of the provisions.

The Decision also applies to computer devices with no distinction between computer devices operating through wireless transmission or requiring physical means. Accordingly computer devices are covered in a broad sense, to include personal computers, desktop computers, minicomputers, analog, digital and hybrid computers, server computers, computerised engine control units (“ECU”) 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. However, 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.

For the “parts and pieces of Electronic Devices”, the Minister of Finance shall issue a decision that will specify the criteria that should be followed in determining the pieces or parts related to Electronic Devices. No further guidance is available yet in this regard.

Business implications

There are several aspects of the changes that businesses will need to give consideration to, including:

• Whether they are supplying or receiving qualifying “Electronic Devices” for the purposes of the rules, 
• How to comply with the new written declaration requirement, 
• Revisions to pre-existing VAT systems and processes,
• Discussions with suppliers and customers who may be affected; and
• The rapid timeframe for implementing changes by 30 October when the new rules take effect.

This digest is for information purposes only and should not be construed as advice. It does not necessarily cover every aspect of the topics with which it deals. You should not act upon the contents of this alert without receiving formal advice on your particular circumstances.