Dubai: Traders and wholesalers in the UAE of electronics, mobile phones, computers and accessories are getting some much-needed relief on their VAT obligations.
This applies to business-to-business (B2B) deals made between VAT-registered dealers. (There are no changes on the VAT related to consumer purchases of electronics goods.)
Under the new rules, sellers of such products will no longer be required to charge VAT on their supplies to VAT-registered buyers who intend to resell the goods.
The buyers going forward will instead provide a written declaration to the seller and self-account for VAT on the purchases. The process is called ‘Reverse Charge Mechanism’ and is already applied on bulk gold trade between VAT-registered dealers in the UAE.
The new decision to extend the same to electronics and computer products will come as a sizeable boost for the electronics and computer trade from the UAE, and a category for which this market has been a longstanding re-export hub.
“Earlier, many overseas bulk buyers used to purchase electronic goods from multiple individual suppliers in the UAE and which were then consolidated for exports,” said Pankaj S. Jain, Managing Director of AskPankaj Tax Advisors.
“There were customers who could not provide export documents to each individual supplier, and the VAT then had the potential to become a cost for the local seller.
“Under the new system, the electronics goods bought in bulk in the UAE can be sold to a single VAT-registered consolidator or shipping company on a Reverse Charge Mechanism basis. The shipping company can then export the goods to the overseas customer in a single shipment using the required documents. It will help mainland suppliers save exponentially on their operating costs.”
With Reverse Charge Mechanism coming into play, UAE electronics businesses can unlock the cash blocked in VAT to grow further
What ‘reverse charge’ means for local suppliers
Put simply, the changes will ease the tax compliance process for the electronics trade in the UAE, said a top industry source.
“The tax authority is moving away from multi-point collection (of VAT) to single point collection,” said Dharmendra Sawlani, President of Dubai Computer group. “This simplifies tax collection while filling gaps in the system and curtail revenue ‘leakage’.
“And (electronics) businesses can unlock the cash blocked in VAT to grow their business. What Reverse Charge Mechanism does is effect a transfer of responsibility on VAT payments.
“The new legislation thus reaffirms the authorities’ dedication to making Dubai and the UAE a hub for tech innovation and trade. We are eager to see the industry thrive under this new tax framework.”
To remain competitive as a trading hub, it is important that the UAE remains affordable and easy to trade with. The Reverse Charge Mechanism switch is a testament to the fact that opinions of the business community and industry groups were listened to
Timely move
The timing of the change as far as the local electronics and tech sector is concerned couldn’t be better. Heading into the final quarter of 2023, it is also the time when bulk deals become the norm as overseas buyers put in orders with UAE suppliers on everything from the Apple iPhone 15 to a trending gaming device.
The new requirements simplify the process right through as far as their accounting for VAT on such deals are concerned. And reinforce the UAE’s credentials as the place to buy gadgets.
“To remain competitive as a trading hub, it is important that the UAE remains affordable and easy to trade with,” said Ashish Panjabi, Chief Operating Officer at Jacky’s Electronics.
“This Reverse Charge Mechanism announcement is a testament to the fact that the opinions of the business community and industry groups were listened to. As a Board Member of the Dubai Computer Group, which represents the interest of the IT traders in Dubai, we had been sharing feedback through official channels in optimizing processes to ensure we the UAE retains its competitive edge as re-exporter."
We congratulate the UAE electronic devices industry for receiving the benefit of Reverse Charge Mechanism on their B2B supplies. We are delighted to be an instrumental part in advocating these tax benefits through industry associations such as Dubai Computer Group
