Understanding VATP034: Key Takeaways from the FTA’s Latest Clarification on the Reverse Charge Mechanism for Electronic Devices
October 11, 2023
In our recent article on the newly introduced Reverse Charge Mechanism applicable to the supplies of Electronic Devices, we highlighted the anticipatory atmosphere surrounding the UAE’s Federal Tax Authority (“FTA”) and its customary issuance of clarifications following new legislative adjustments in the UAE’s tax landscape.
True to its pattern, the FTA has recently responded with its latest Public Clarification VATP034 on October 8, 2023. This clarification sheds light on the application of the reverse charge mechanism on electronic devices among VAT-registrants in the UAE for VAT purposes. In this article, we will delve into the key takeaways from VATP034 for businesses and stakeholders in the region.
This article does not aim to comment on the provisions of Cabinet Decision No. 91 of 2023, as these have already been discussed in our previous Article – “UAE’s Cabinet Subjects Electronic Devices to Domestic Reverse Charge”, and is limited to key takeaways highlighted by the FTA in its Public Clarification VATP034.
The recently issued public clarification VATP034 provides valuable insights in respect of the application of Cabinet Decision No. 91 of 2023. The most important of these are stated below:
- “Intention to resell” can only exist where part of the business of the recipient is to trade in such devices. Devices purchased to be re-sold to employees for use in business are not deemed purchased with an intention to re-sell.
- The scope of Cabinet Decision No. 91 of 2023 is restricted to phones that operate through wireless transmission. Hence, phones operating through physical means such as wire, or fiber optic cables fall outside the scope of Cabinet Decision No. 91 of 2023 and the normal rules of VAT would apply. However, the same does not apply to computer devices, as they would fall within the scope of Cabinet Decision No. 91 of 2023 whether wireless or not.
- E-readers (other than the commonly known tablets) do not constitute “Electronic Devices” and are hence outside the scope of Cabinet Decision No. 91 of 2023.
- A supply of electronic devices from the UAE mainland to a VAT designated zone, or a movement of such goods from the UAE mainland to a VAT designated zone, will be subject to the provisions of Cabinet Decision No. 91 of 2023.
- The two declarations to be provided to the supplier of electronic devices by the recipient may be combined into a single document.
The FTA’s new update, VATP034, provides more information in respect of the tax rules applicable to the supplies of electronic devices in the UAE, therefore aiding businesses in understanding their tax obligations in this regard. Nevertheless, businesses should stay up-to-date, and are recommended to seek legal advice to ensure comprehensive compliance with the effective tax legislation.
This Article is prepared by Mohamed El Baghdady, Head of Tax and Financial Crimes, and Marwan Alnooryani, Senior Tax Associate, at Habib Al Mulla & Partners Law Firm.
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