What is the reverse charge mechanism in UAE VAT? Learn when it applies, how to calculate it, and how to report it on VAT201.
What Is the Reverse Charge Mechanism in UAE VAT?
What is the reverse charge mechanism?
It is a UAE VAT rule where the buyer, not the supplier, accounts for VAT on certain transactions, usually by self-reporting VAT in the VAT return.
This matters for businesses in Dubai, Abu Dhabi, Sharjah, and UAE free zones because reverse charge transactions can affect your VAT return figures, input VAT recovery, and overall compliance risk.
In this guide, you will learn what the reverse charge mechanism is, when it applies in the UAE, and how it appears in your VAT return.
If you want to confirm whether reverse charge applies to your invoices, TAXESMAN can help.
What Is the Reverse Charge Mechanism and Why Does the UAE Use It?
In simple terms, the reverse charge mechanism is used to protect VAT collection when the supplier is not required or not able to charge UAE VAT, most commonly when the supplier is outside the UAE.
Instead of losing VAT revenue, the UAE requires the recipient of the goods or services to account for VAT directly.
This ensures VAT is properly declared even when:
• The supplier is overseas
• The supplier is not UAE VAT registered
• Specific local sectors are subject to domestic reverse charge rules
If you want to understand whether your business is exposed to reverse charge VAT risk, contact TAXESMAN today.
What Is the Reverse Charge Mechanism and When Does It Apply in the UAE?
1) Imported services (very common for SMEs and startups)
This is the most common reverse charge scenario in the UAE.
If your UAE VAT-registered business receives services from a supplier outside the UAE, such as:
• Consulting services
• Software subscriptions
• Advertising and digital marketing
• IT or technical services
The foreign supplier does not charge UAE VAT, but you may still need to declare VAT under reverse charge.
Practical example:
A Dubai company pays a UK marketing agency.
• No UAE VAT is charged by the agency
• The Dubai company self-accounts for VAT under reverse charge
• The VAT is declared in the VAT return and may be recovered if eligible
If you want TAXESMAN to review your foreign supplier invoices, contact TAXESMAN today.
2) Imports of goods and certain movements into the UAE
The UAE VAT Executive Regulations include rules where VAT on imports may be accounted for under reverse charge mechanisms in specific situations.
This is particularly relevant for:
• Trading companies
• Importers
• E-commerce sellers importing goods into Dubai or Sharjah
Aligning customs declarations, import documentation, and VAT reporting is critical.
Need help syncing imports with your VAT return? TAXESMAN can help.
3) Domestic reverse charge in specific UAE sectors
Reverse charge does not only apply to imports.
The UAE has introduced domestic reverse charge rules for specific sectors between VAT-registered businesses, including:
• Electronic devices traded between registrants
• Precious metals
• Metal scrap trading
In these cases, VAT is not charged by the supplier. Instead, the buyer accounts for VAT under reverse charge.
If your business operates in electronics, precious metals, or scrap trading, do not assume invoices should always include VAT.
TAXESMAN can quickly confirm whether domestic reverse charge applies to your sector.
How Do You Calculate VAT Under the Reverse Charge Mechanism?
When reverse charge applies, the buyer acts as both:
• The supplier (declaring output VAT), and
• The buyer (recovering input VAT, if eligible)
In many cases, businesses declare output VAT and recover input VAT in the same VAT return, resulting in no net cash payment, subject to recovery rules.
Simple example (Abu Dhabi):
• Overseas service invoice: AED 10,000
• VAT at 5% under reverse charge: AED 500
• AED 500 declared as output VAT
• AED 500 recovered as input VAT (if eligible)
If you want TAXESMAN to calculate and validate your reverse charge VAT, contact TAXESMAN today.
How Do You Report Reverse Charge VAT on the VAT Return (VAT201)?
From a VAT return perspective, reverse charge affects specific boxes in VAT201.
Common issues businesses face include:
• Declaring reverse charge output VAT but forgetting to recover input VAT
• Claiming input VAT without eligibility
• Reporting reverse charge amounts in the wrong VAT201 sections
This is one of the most common areas flagged during FTA reviews.
If you want clean VAT201 filing with correct reverse charge reporting, TAXESMAN can handle it for you.
Common Mistakes Businesses Make With the Reverse Charge Mechanism
If you are asking “What is the reverse charge mechanism?”, you are already ahead of many businesses.
Common mistakes include:
• Assuming overseas invoices mean “no VAT at all”
• Missing reverse charge on SaaS, ads, and consulting services
• Applying domestic reverse charge incorrectly in regulated sectors
• Reporting reverse charge incorrectly in VAT201
These errors increase the risk of FTA follow-ups and penalties.
If you want to avoid this completely, contact TAXESMAN today.
Conclusion: What Is the Reverse Charge Mechanism?
To recap, what is the reverse charge mechanism?
It is a UAE VAT rule where the buyer accounts for VAT instead of the supplier on certain transactions, most commonly:
• Imported services
• Certain imports
• Specific domestic sectors defined by official decisions
Do not take chances with VAT compliance. Let TAXESMAN review your transactions, calculate reverse charge VAT correctly, and file your VAT returns with confidence.
FAQs: What Is the Reverse Charge Mechanism?
What is the reverse charge mechanism in UAE VAT?
It is where VAT responsibility shifts to the buyer, who self-accounts for VAT in the VAT return instead of the supplier charging VAT.
When does the reverse charge mechanism apply in the UAE?
Commonly for imported services from overseas suppliers and for specific domestic sectors among VAT registrants.
Do free zone companies deal with reverse charge VAT?
Yes. Free zone companies can still be affected by reverse charge depending on the transaction type.
Can I recover VAT under reverse charge?
Often yes, if normal input VAT recovery conditions are met and documentation is correct.
Who can help me apply reverse charge correctly?
TAXESMAN can review your invoices, confirm applicability, and handle VAT201 filing and bookkeeping.