Local supply of electronics, electric devices are subject to reverse charge mechanism

Khaleej Times' has launched a new initiative to offer readers expert insights about the impact of VAT and Corporate Tax on UAE’s business environment. Here is another expert view:

We are company located in a designated free zone of Dubai. Our activities are trading of electronics and electric devices. We sometimes buy products from a UAE mainland seller and then export overseas. Some of these sellers have warehouse in the same designated zone (from which the goods are shipped directly to our overseas customers) while others have cleared customs and stored the goods in the UAE mainland. Kindly guide us on how we should treat VAT on each of these scenarios.

We assume that the suppliers and the entity are registered with FTA under VAT law. As per the cabinet decision no. 91 of 2023 the local supply of electronics and electric devices shall be subject to reverse charge mechanism (RCM). Hence, when the goods are supplied from mainland, the supplier will ask the entity to declare if goods will be consumed or are they for resale. If entity declares it for resale or to be used in manufacturing process, then the supplier will not be required to charge VAT in its invoice and entity will be required to record VAT liability under RCM.

Under VAT, designated zones are considered out of UAE, and hence, when the supplier sells goods which are located in designated zones at the time sale such will be considered as out of scope for VAT purpose and hence, no VAT is required to be charged by the supplier.

Under both the scenarios, buyer (in designated zone) can export the goods to its overseas customer by raising a tax invoice without effectively charging VAT as the goods are subsequently located in the designated zone to be exported.

Our question is related to corporate tax. We are a company located in a designated zone in Sharjah. We have terminals where our customers provide us the goods (oil products) to store for a period of time based on the contract between us and the customer. We are mere custodian of these goods and release the goods as per the request of the customer. Kindly let us know your view on how our company shall be treated for UAE corporate tax.

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