Reverse Charge — How It Works

What is the Reverse Charge?

The reverse charge mechanism shifts the responsibility for accounting for VAT from the supplier to the recipient. Instead of the supplier charging and remitting VAT, the recipient accounts for it on their own VAT return.

When Does It Apply?

1. Services from non-residents: When a UAE-registered business receives services from a supplier outside the UAE.
2. Import of goods: Under certain conditions, importers may account for import VAT under reverse charge instead of paying at customs.
3. Cross-border B2B supplies: Certain supplies between businesses across GCC implementing states.

How It Works

When a UAE-registered business receives services from a non-resident:

1. The non-resident supplier does not charge VAT.
2. The UAE recipient accounts for VAT as if they made the supply to themselves:
   • Charges output tax (5%) on the value of the service.
   • Claims input tax (5%) on the same value, if eligible.
3. Both entries appear on the same VAT return — often resulting in zero net cash impact.

Why It Exists

The reverse charge prevents the need for non-resident suppliers to register for VAT in every country where their customers are located. It simplifies cross-border trade while ensuring VAT is still accounted for.

Impact on Cash Flow

For a fully taxable business, the reverse charge has no net cash impact — output tax equals input tax. However, for a partial exemption business, the input tax portion may be partially restricted.