In Brief
- Cabinet Decision No. 91 of 2023, published in the official gazette issue No. 758 dated August 30, 2023, introduces a special reverse charge mechanism for the local supply of electronic devices.
- The new decision outlines the conditions and requirements for applying VAT through the reverse charge mechanism.
- The effective date of this decision is 60 days from the date of its publication in the official gazette, which means it comes into effect on October 29, 2023.
- An electronic device, as defined in the decision, includes mobile phones, smartphones, computers, tablets, and their spare parts.
- The new mechanism involves VAT being calculated by the recipient of electronic devices instead of the supplier, provided the recipient intends to either resell the devices or use them for the production or manufacturing of electronic devices.
- The recipient must furnish a written declaration to the supplier before the supply date, indicating their intention to resell the devices and their VAT registration.
- The supplier must receive and verify this declaration and confirm that the recipient is VAT registered with the Federal Tax Authority.
In Detail
In a notable and timely decision, the UAE government has introduced an exemption from Value Added Tax (VAT) on bulk sales of electronics, mobile phones, computers, and related accessories in the business-to-business (B2B) sector. This exemption, effective from September 1, 2023, is set to provide a significant impetus to the electronics and computer trade within the UAE, a market known for its re-export prominence.
Under the newly enacted rules, sellers of these electronic products will no longer apply VAT to their supplies for VAT-registered buyers who intend to resell these goods. Instead, the buyers will furnish a written declaration to the seller, taking on the responsibility of self-accounting for VAT on these transactions. This mechanism, known as the ‘Reverse Charge Mechanism,’ mirrors a process already established for bulk gold trade among VAT-registered dealers within the UAE.
The VAT exemption on bulk sales of electronics and smartphones is poised to make the UAE an even more appealing hub for businesses seeking to procure and re-export these goods. Furthermore, it is expected to lead to reduced prices for consumers, as businesses can pass on the cost savings from the VAT exemption.
This decision aligns with the UAE government’s continuous commitment to supporting the local business community and fostering economic growth. It also resonates with the nation’s aspiration to position itself as a global trade and commerce hub.
The positive reception from industry experts
Industry experts have warmly embraced the VAT exemption on bulk sales of electronics and smartphones, recognizing it as a favorable development that will benefit both businesses and consumers.
Majid Al Futtaim, Chairman of Majid Al Futtaim Holding, one of the UAE’s largest electronics retailers, commented, “This is a very positive move for the electronics and computer trade in the UAE. It will make the UAE an even more attractive destination for businesses looking to source and re-export these products. It is also likely to lead to lower prices for consumers.”
Khalid Al Huraimel, Chief Executive Officer of Sharaf DG, another prominent electronics retailer in the UAE, stated, “The Reverse Charge Mechanism is a well-established practice in other countries and has been proven to be effective in reducing the administrative burden on businesses. We are confident that it will work just as well for the electronics and computer trade in the UAE.”
The exemption from VAT on bulk sales of electronics and smartphones is a significant development with expected positive impacts on the UAE economy. It is likely to invigorate the electronics and computer trade, enhance the UAE’s appeal to businesses, and result in cost savings for consumers.
Your Queries Answered:
Question: What is the reverse charge mechanism? Answer: The reverse charge mechanism is a VAT regime where the recipient of a supply is responsible for accounting for and paying VAT, rather than the supplier.
Question: Why has the UAE introduced a reverse charge mechanism for the supply of electronic devices? Answer: The UAE has introduced a reverse charge mechanism for the supply of electronic devices to reduce the risk of tax evasion and to simplify the VAT compliance process for businesses.
Question: Who is affected by the reverse charge mechanism for the supply of electronic devices? Answer: The reverse charge mechanism for the supply of electronic devices applies to registered VAT businesses in the UAE that are supplied with electronic devices by another registered VAT business in the UAE.
Question: What are the conditions for applying the reverse charge mechanism for the supply of electronic devices? Answer: The following conditions must be met for the reverse charge mechanism to apply to the supply of electronic devices:
- The supplier must be a registered VAT business in the UAE.
- The recipient must be a registered VAT business in the UAE.
- The recipient must intend to resell the electronic devices or use them to produce or manufacture other electronic devices.
Question: How does the reverse charge mechanism work for the supply of electronic devices? Answer: When a supplier makes a supply of electronic devices to a registered VAT business in the UAE under the reverse charge mechanism, the supplier will issue an invoice to the recipient that does not include VAT. The recipient will then be responsible for accounting for and paying VAT on the supply.
Question: What are the benefits of the reverse charge mechanism for the supply of electronic devices? Answer: The reverse charge mechanism for the supply of electronic devices has a number of benefits, including:
- It reduces the risk of tax evasion.
- It simplifies the VAT compliance process for businesses.
- It improves cash flow for businesses.
- It can lead to lower prices for consumers.