After introducing new VAT rules in Dubai, the general VAT rate on electronics was 5% VAT on electronics in Dubai. This VAT rate applies to almost all goods and services, with a 0% VAT rate on some goods and services in the UAE. The 5% VAT rate applies to business-to-business trades, and there are no VAT charges for customers who purchase electronic goods such as mobiles, computers, and other accessories.
According to the Federal Tax Authority, UAE, the VAT is applied to export goods and services outside the Gulf Cooperation Council (GCC Countries), oil and gas, international transport, Real Estate, health and education sectors.
Let us look at types of VAT and how it applies to electronics and other goods.
VAT on Bulk Sales of Electronics
According to the new law, electronics sellers are not required to charge VAT from tax-registered customers who intend to resell the commodities. In the future, electronics buyers must provide a written statement for VAT on the purchases.
This procedure is known as the “Reverse Charge Mechanism,” which already applies to the VAT-registered traders involved in bulk gold trade.
Types of Electronics
The VAT applies to the following types of electronics;
- Smart Phones operated by wireless network
- Computer devices include desktops, personal computers, hybrid computers, and computerized engine control units of automobiles.
- Tablets which are portable and wireless with touch screen, which works the same as a computer
- Part used for the production of electronic devices
Supplies Considered as Electronics
It is important to know which supplies are considered electronics under the law. If the supplies fall under the electronics category, that company must follow an automated system to deliver the service. The list of supplies that fall under the electronics category is given below.
- Supplying and updating software
- Web Hosting, domain names, maintenance of equipment, etc
- Supplying films, games and music
- Electronic books, images and documents
- Broadcast of sports, political, educational and artistic events
- Live Streaming through online platforms
- Distant learning
- Supplying ad space on a website or other related advertisement services
Indicating Place of Supply of Electronics
It is important to establish the place of electronics supply to determine if there is a tax on supply in the UAE. This law was introduced by the Federal Tax Authority for Telecommunications and Electronics.
According to the Decree-law article 31, the place of supply should,
- In the country, to the length of use of the supply in the country
- Outside the country, to the length of use of the supply outside.
In addition, the real use of electronics must be at the place of use of services, irrespective of the place of payment or bargains.
How does VAT apply to Electronic Services in Dubai?
VAT on electronic services is determined by where the electronic services are supplied. If the supply was made within the states, VAT will apply, but if the supply was made outside the states, VAT will not apply.
The VAT rate on the supply of l electronics is 5% in the UAE. You can get help from tax specialists to understand the liability of VAT on electronic services.
Supply of Electronics Services as Zero-Rated VAT
Under some conditions, the supply of electronics services can be Zero-Rated in the UAE. Under the law, some electronic services can be treated as zero-rated instead of the basic 5% rate. Let us look at the conditions under which the electronics services can be treated as zero-rated.
- Electronics can be treated at a 0% rate if the person receiving the service is not a resident of the States and was outside the country at the time.
- Electronics can be treated at a 0% rate if the electronics services are not supplied directly to the estate located in the country or the development of the estate or directly linked with personal property in the country at the time of supply of services.
Reverse Charge for Local Distributors
A reverse charge means the seller will not charge VAT on the electronics trade invoices, and the buyer is responsible for paying VAT. It will help the tax collection procedure, close the tax system gap, and help the company unlock the cash blocked in the value-added tax.
Under this tax framework, electronics companies can grow their business, and it also shows the authorities’ dedication to making the country the center of trade and technology.
Why is it Necessary to Provide a Declaration of Intent?
It is necessary to provide a declaration of intent due to the following reasons.
- Suppose the person receiving electronics does not provide the declaration of intent to the supplier and confirm their status as registrant before the supply date. In that case, the supplier can charge output tax on these transactions.
- If electronics are not intended for use by the receiver in activities that allow for input tax recovery, they can not claim input tax.
- The receiver can not consider the electronics used in producing supplies liable to tax or if the supply was conducted outside the country.
This condition does not apply to the export of electronics supplies and will be considered a zero-rated supply. However, if the supply is made from the UAE Mainland, it will not be considered an export of goods, and the zero-rated VAT will not apply to them.
If the suppliers registered under VAT supply electrons to the registered VAT customers wanting to resell the products or use them to produce or manufacture electronics, both supplier and customer have different legal requirements, and both need to meet these requirements.
Types of VAT in UAE
According to the types of goods and supplies, there are three types of VAT in UAE.
-
Standard Value-Added Tax
In the UAE, a standard value-added tax (VAT) of 5% is applied to the import and supply of goods and services. According to the new law, all VAT-registered companies must pay a standard VAT. The tax charged by the retailer can be recovered under certain conditions.
-
Zero Rated Value-Added Tax
The VAT does not apply to the zero-rated supplies (food, medication, water export goods, etc) as their applicable rate is 0%, but these goods and services are taxable in all other areas. That’s why the supplier can claim back the tax they have paid on business payments.
According to the Federal Tax Authority (FTA), the zero VAT rate applies to the following goods and services supply.
- Export of goods and services outside the state
- Transport of goods and passengers internationally.
- The land or sea transportation used for transport of goods and passengers
- Residential real estate
- Rescue aircrafts
- Import or supply of precious metals
- Healthcare and related services
- Educational and training centers such as preschools, nurseries, universities, either federal or government
- Buildings used by charities
- Buildings changed from non-residential to residential buildings
-
VAT-Free Supplies
The goods and services in this category are free from paying VAT, meaning they do not sustain taxes at the time of purchase or sale. According to the UAE Federal Tax Authority, the following supplies are VAT-free.
Certain financial services are tax-free, such as life insurance and related services.
- The supply of residential buildings is VAT-free.
- Business transactions between different companies of Free Zones (general legislation may apply for certain services)
- Barren land in the States
- Transportation of local passengers
Important Factors about VAT in UAE
There are some important factors about VAT that you need to keep in mind, such as,
- Under certain conditions, VAT grouping is permitted
- UAE resident companies must pay a VAT registration fee of around AED 375,000 and a voluntary registration fee of AED 187,000.
- Non-residents or foreigners involved in trade (supplies that require VAT payment) do not have to register for VAT.
- Companies must keep records of financial transactions and documents monthly or quarterly as required by the UAE Federal Tax Authority.
- The businesses can claim surplus output from the FTA by following the required procedure. On the other hand, VAT credits can be subtracted from future production or output.
- If a company does not pay taxes on time and comply with other VAT liabilities, it will face fines and punishment from the authorities.
VAT in Dubai on Gold and other Precious Metals
According to the recent law passed by the UAE government, businesses trading in gold and other precious metals won’t have to pay Value Added Tax (VAT). This law will greatly help the UAE’s gold market and increase its competitiveness.
Summary!
Ultimately, we hope this article has provided useful insights into the impact of VAT on electronics in Dubai. With the help of new VAT laws, it has become an advantage provided by the authorities to the tech industry in the UAE. With the help of new requirements, the process of VAT has become easy and has helped the country become a hub of electronics and gadget trade.
The VAT process can be quite complicated for a person registered as VAT-liable. To fully understand the VAT process, it is necessary to get help from Business Consultants Like Al-Riyady. Our team is an expert in tax policies and helps you better understand the policies of the Federal Tax Authority UAE. Our other services are Accounting, Auditing, Business Liquidation and more.
