Abu Dhabi: Starting October 30, the Federal Tax Authority (FTA) and VAT registrants will enforce the Reverse Charge Mechanism (RCM) for electronic device transactions among tax registrants. Under this mechanism, the responsibility for VAT on electronic device supplies (for example, mobile phones, smartphones, computer devices, tablets, and related parts) will shift from the supplier to the recipient if these items are intended for resale or use in electronic device manufacturing.
In the clarification issued on Wednesday, the FTA outlined the goods covered by the Decision – ‘mobile phones and smartphones’ - which include phones and devices that only have call and/or text functions and those that include additional functions. It applies only to phones and devices that operate through wireless transmission and excludes phones and devices running through physical means, such as wire or fibre optic cables. The registered recipient will calculate and report VAT on these supplies in their Tax Returns, along with fulfilling relevant tax obligations, FTA said on Wednesday.
Additionally, the Cabinet Decision includes all types of computers, such as personal computers, desktop computers, minicomputers, analogue, digital, hybrid computers, servers, computerised engine control units (ECU) for cars, and other similar devices.
It also covers tablets, which are wireless, portable, personal computers with a touchscreen interface, with functionalities that combine those of a smartphone and a computer. E-readers, marketed as such, without other features such as gaming or web browsing, are not included under the definition of electronic devices, said FTA.
The FTA confirmed that the new amendments are part of an ongoing endeavour to update legislation and tax procedures to keep pace with developments, improve the tax system’s efficiency, and strengthen trust and cooperation between the Authority and taxpayers.
It also hopes to support taxpayers to meet their tax obligations. “These measures will also contribute to maintaining the levels of cash liquidity of registered investors and suppliers of electronic devices and reducing their tax burden,” said the Authority.
What happens if Cabinet decisions aren’t met?
The FTA has clarified that when certain requirements from the Cabinet Decision aren’t met, the standard VAT rule applies, making the supplier responsible for VAT calculation. However, this might prevent the registered recipient from recovering input tax.
In this clarification, ‘resell’ refers to the recipient’s business involvement with the electronic devices, whether wholesale or retail. The Reverse Charge Mechanism doesn’t apply when electronic devices are acquired for internal use, not resale. The term ‘producing or manufacturing’ in the Decision covers both partial and complete assembly of electronic devices. If parts are obtained to make electronic devices, the RCM applies. The FTA’s explanation details Reverse Charge Mechanism compliance for electronic devices. Stakeholders are encouraged to visit the FTA official website for more information.