Uncovering the Missed Mechanism: Guiding a UAE Trader to VAT Efficiency through Domestic Reverse Charge
A UAE-based trading company dealing in used computers and related components approached us for VAT compliance services. Although this was not their first VAT return, it was the first one we were preparing for them following a change from their previous tax advisor. Upon our initial review of their sales and VAT treatment, we noticed that the client had been charging 5% VAT on all domestic sales of used laptops, processors, hard drives, power supplies, and other computer parts—irrespective of the buyer’s registration status.
While this treatment was not incorrect in itself, it failed to take advantage of the Domestic Reverse Charge Mechanism (DRCM) introduced under Cabinet Decision No. 91 of 2023, which allows VAT-registered suppliers to avoid charging VAT on certain electronic goods and components when sold to other VAT-registered businesses in the UAE. Upon discussion, we discovered the client was unaware of the DRCM framework and believed that if reverse charge applied, the transactions should be reported as zero-rated.
We clarified this misunderstanding by explaining that DRCM-eligible supplies are not zero-rated under UAE law; rather, they are simply omitted from the supplier’s output VAT declaration. This is in contrast to jurisdictions such as Bahrain and the UK, where VAT returns include separate fields to capture reverse charge transactions. In the UAE, there is no dedicated disclosure box—as confirmed in Public Clarification VATP034—and suppliers must only ensure they meet the conditions, retain documentation, and annotate invoices accordingly.
In assessing eligibility, we reviewed the nature of the goods based on Ministerial Decision No. 262 of 2023, which outlines three criteria for determining whether parts and components qualify as “electronic devices.” The products supplied by the client—including internal computer parts and chargers—met either the primary or replacement component criteria. Additionally, Public Clarification VATP035 provided further guidance confirming that such parts fall within the scope of Decision No. 91 when supplied between registrants.
We advised the client to adopt DRCM going forward for all qualifying B2B transactions. This included updating invoice language to state:
“This supply is subject to domestic reverse charge under Cabinet Decision No. 91 of 2023—VAT to be accounted for by the recipient.”
By implementing this change, the client reduced administrative effort, eliminated the need to charge and remit output VAT on eligible supplies, and aligned their practices with current UAE VAT law. The case reflects how informed VAT compliance and awareness of public clarifications can help businesses operate more efficiently while maintaining full regulatory alignment.
