Reverse Charge Mechanism on Supply of Electronic Devices

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Generally, the supplier of goods or services is responsible for payment of VAT[1] and related compliances. However, in some cases, the law casts the responsibility on the recipient through the Reverse Charge Mechanism (RCM). The Federal Tax Authority (FTA[2]) issued a Cabinet Decision 91/2023 on 25 August 2023 introducing RCM on supply of Electronic Devices (EDs) to a recipient. Recently, the FTA also issued a Public Clarification on 6 October 2023 to clarify various aspects of the said decision. In this blog, we have summarized the details of the Public Clarification in a simplified manner.

1.    Decision 91/2023 applies to a transaction if the following conditions are satisfied:

a.    Both supplier and recipient must be Registrants for VAT in the UAE;

b.    The supplier supplies EDs to the recipient;

c.    The recipient intends to resell the EDs or use them to produce or manufacture EDs; and

d.    The supplier procures a written declaration from the recipient confirming the above.

In such a case, the recipient (and not the supplier) is responsible for payment of VAT and all other compliances in relation to supply of EDs.

2.    The Public Clarification provides instances of transactions/goods covered under the scope of Decision 91/2023 as enumerated in the table below.

3.    Regulatory compliances

Decision 91/2023 requires that the recipient must provide a written declaration to the supplier to the effect that (i) he intends to use EDs for the purpose of reselling or producing or manufacturing EDs and (ii) he registered with the FTA, along with the TRN[5]. The supplier is required to receive and maintain the Recipient’s declaration and independently verify the Recipient’s TRN using the functionality provided on the FTA’s website.

If the recipient fails to provide the said declaration to the supplier prior to the date of the supply, then:

o   the supplier must account for Output Tax on the supply of the EDs, unless the supply meets the conditions for zero-rating; and

o   the Input Tax incurred by the recipient on EDs is not recoverable as EDs shall not be considered to be used for providing taxable supplies or supplies outside the UAE.

4.    Decision 91/2023 will be effective from 29 October 2023.

5.    The decision shifts the responsibility of VAT payment and filings from the supplier to the recipient of EDs. The suppliers as well as the recipients would now have to re-jig their systems to implement the change in a law.

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