FTA implements Charge Reversal Mechanism on electronic devices for VAT compliance

He Federal Tax Authority (FTA) and those registered for Value Added Tax (VAT) with the Authority will begin to implement a new decision starting Monday, October 30, 2023applying the Reverse charging mechanism (RCM) on deliveries of electronic devices between tax filers.

The RCM will result in the VAT liability on supplies of electronic devices – such as mobile phones, smartphones, computing devices, tablets and their parts and pieces – being transferred from the registered supplier to the registered recipient provided they are supplied to a registered recipient in order to be resold or used in the manufacture of electronic devices. The registered recipient will then be responsible for calculating VAT on those supplies, including it in their tax return and complying with any specific tax obligations relating to these supplies.

The Authority noted that the implementation of the Mechanism is in line with the Cabinet Decision on the Application of the RCM to Electronic Devices for VAT purposes, which will come into force on October 30, 2023.

He FTA confirmed that the new amendments are part of an ongoing effort to update tax legislation and procedures to keep up with developments, improve the efficiency of the tax system, strengthen trust and cooperation between the Authority and taxpayers, and support taxpayers to comply with their tax obligations. These measures will also help maintain the cash liquidity levels of registered investors and electronic device suppliers and reduce their tax burden.

In a new Clarification – available in the Public Clarifications service on the official FTA website – the FTA outlined the products covered by the Decision, “mobile phones and smartphones,” which include phones and devices that only have calling and/or text messaging functions, as well as those that include additional functions. It applies only to phones and devices that operate via wireless transmission and excludes phones and devices that operate over physical media, such as wires or fiber optic cables.

The Cabinet Decision also includes all types of computers, such as personal computers, desktop computers, minicomputers, analog, digital and hybrid computers, servers, computerized engine control units (ECUs) for automobiles and other similar devices. It also covers tablets, which are essentially portable, wireless personal computers with a touch-screen interface, with functionalities that combine those of a smartphone and a computer. E-readers, marketed as such, without other functions such as gaming or web browsing, are not included in the definition of electronic devices.

He FTA The clarification explains that if the requirements specified in the Cabinet Decision are not met, the regular rule for VAT would apply, where the supplier is obliged to calculate VAT. However, this could result in the registered recipient being unable to recover input tax.

According to the clarification, for the purposes of implementing the Decision, “Resale” will be understood as part of the business of the recipient of the electronic devices. Resale by the recipient of electronic devices may be at a wholesale or retail level.

The Reverse Charge Mechanism does not apply where a supply is made to a recipient who acquires the electronic devices for use in their own business, and not for production or manufacturing or without “intent of resale”. For example, when smartphones are purchased for distribution to employees for professional use, the Decision does not apply even if employees are charged for the receipt or use of the smartphones, as this is not considered a resale that forms part of the commercial activity. of the taxpayer.

The phrase “produce or manufacture” electronic devices in the Decision covers both partial and total production or manufacturing of electronic devices. For example, if the registered recipient acquires parts, considered electronic devices, to assemble them into another part of an electronic device and insert them into a semi-finished computer owned by another person, the RCM applies since the parts are acquired with the intention of produce or manufacture electronic devices.

He FTAThe Clarification includes a detailed explanation of the compliance requirements for the Charge Reverse Mechanism on electronic devices among registrants.

News source: Emirates News Agency