Scenario 4: Import, Export, and Reverse Charge

Scenario: Dubai Trading Company — Import/Export

Business Profile

• Entity: Dubai Import-Export Trading LLC
• Activity: Importing goods from Asia, exporting to Africa
• Registered: Yes, authorized for reverse charge on imports

Transactions in Q1 2026

1. Import from China: AED 500,000 (CIF) + AED 25,000 customs duty

   • Import VAT = 5% × (500,000 + 25,000) = AED 26,250
   • Under reverse charge: AED 26,250 output tax + AED 26,250 input tax (net zero)

2. Export to Kenya: AED 700,000

   • Treatment: Zero-rated (export outside GCC)
   • Customs export documentation maintained

3. Domestic sale: AED 100,000

   • Treatment: Standard-rated at 5% (AED 4,762 output tax)

4. Consulting from UK firm: AED 30,000

   • Reverse charge: AED 1,500 output tax + AED 1,500 input tax

5. Domestic purchases: AED 200,000 + AED 10,000 VAT

   • Input tax recoverable: AED 10,000

VAT Return Summary

Output Tax:

• Import reverse charge: AED 26,250
• Domestic sale: AED 4,762
• Consulting reverse charge: AED 1,500
• Total output tax: AED 32,512

Input Tax:

• Import reverse charge: AED 26,250
• Domestic purchases: AED 10,000
• Consulting reverse charge: AED 1,500
• Total input tax: AED 37,750

Net VAT Refundable: AED 37,750 − AED 32,512 = AED 5,238 refund

Key Lessons

1. Reverse charge on imports improves cash flow — no cash payment at customs.
2. Exports are zero-rated with proper documentation.
3. Reverse charge on services creates offsetting output and input tax entries.
4. Trading companies often receive VAT refunds because exports (zero-rated, no output tax) are paired with substantial input tax on imports and domestic purchases.
5. Maintain customs documentation for all imports and exports to support the VAT treatment.