Reverse Charge Mechanism UAE (VAT)

Are you dealing with overseas suppliers while operating in the UAE? If so, you are likely already familiar with VAT registration and compliance requirements. One important area to understand is how VAT applies when you purchase goods or services from foreign suppliers. 

Overview of VAT and the Reverse Charge Mechanism UAE 

Under the UAE VAT system, when a VAT-registered supplier makes a taxable supply, they are generally required to: 

• Charge VAT  

• Collect VAT from the buyer  

• Pay the VAT collected to the Federal Tax Authority (FTA)  

This is known as the forward charge mechanism, which is the standard method of accounting for VAT. 

However, the position changes when you deal with overseas suppliers. 

For example, if you purchase services from a company based in the UK, USA, or India, those suppliers are usually not registered for VAT in the UAE. As a result, they do not charge UAE VAT on their invoices. 

So, who pays the VAT in such cases? 

This is where the Reverse Charge Mechanism (RCM) comes into play. 

In simple terms: 

• Under the normal VAT system → The seller pays VAT to the government  

• Under the reverse charge mechanism → The buyer pays VAT to the government  

Therefore, if you are a VAT-registered business in the UAE purchasing goods or services from overseas suppliers, you are responsible for calculating, reporting, and paying the VAT yourself. 

Effectively, for VAT purposes, you act as both the buyer and the supplier. 

In this article, we explain how the reverse charge mechanism works in the UAE, when it applies, and what businesses need to do to remain compliant. 

What is the Reverse Charge Mechanism in UAE VAT? 

The UAE VAT Reverse Charge Mechanism shifts the responsibility for accounting for VAT from the supplier to the recipient of the goods or services. 

Under the normal VAT process, the supplier charges VAT to the customer, collects it, and pays it to the FTA. This works when the supplier is registered for VAT in the UAE. 

However, overseas suppliers are generally not registered with the UAE FTA and therefore have no obligation to charge UAE VAT. 

In such cases, the responsibility shifts to the UAE-registered recipient. 

Under the reverse charge mechanism, the UAE business receiving the goods or services must: 

• Calculate the VAT due  

• Report it in its VAT return  

• Pay the VAT to the FTA  

In simple words, the UAE business becomes responsible for accounting for VAT on behalf of the overseas supplier. 

Example: Import of Services 

Suppose: 

• A company in Dubai hires a marketing agency in India  

• The Indian agency charges AED 10,000 for its services  

• The Indian company is not registered for VAT in the UAE  

In this case: 

• The Indian agency will not charge UAE VAT  

• However, VAT is still payable in the UAE  

Under the reverse charge mechanism, the Dubai company must: 

• Calculate VAT at 5% on AED 10,000  

• Report AED 500 as output VAT in its VAT return  

• Pay the VAT to the FTA  

[Equation]5%×10,000=500 

If the company is eligible to recover input VAT, it may also claim the same AED 500 as input tax in the same VAT return, resulting in no net VAT cost. 

What UAE Businesses Need to Know About RCM 

Under Article 48 of the UAE VAT Law, if you are a VAT-registered business importing goods or services into the UAE, you are legally required to: 

• Self-assess the VAT due on the imported goods or services  

• Report it as output tax in your VAT return  

• Reclaim it as input tax in the same return, subject to eligibility  

• Maintain proper records and documentation for all such transactions  

The Executive Regulations under Cabinet Resolution No. 52 of 2017 provide further guidance on how the reverse charge mechanism operates in practice, including documentation, invoicing, and filing requirements. 

When Does the Reverse Charge Mechanism Apply? 

The reverse charge mechanism does not apply to every transaction. It is relevant only in specific cases. 

1. Import of Services from Overseas Suppliers 

This is the most common scenario for UAE businesses. 

If you receive services from a foreign supplier who is not registered for VAT in the UAE — such as consulting, legal, IT, software, digital marketing, or management services — you are required to apply the reverse charge mechanism. 

2. Import of Goods from Outside the UAE 

When a UAE VAT-registered business imports goods from an overseas supplier who is not registered in the UAE, the importer is responsible for accounting for the VAT on those goods under the reverse charge mechanism. 

3. Transactions Involving Designated Zones 

Certain transactions involving goods within designated free zones in the UAE may also trigger reverse charge implications, depending on the nature of the transaction and whether the goods enter mainland UAE. 

For example, transactions involving goods in zones such as Jebel Ali Free Zone may require careful VAT analysis. 

4. Specific Domestic B2B Supplies 

The reverse charge mechanism can also apply to certain domestic transactions between VAT-registered businesses within the UAE. 

This is particularly relevant for high-risk sectors and specific goods, including: 

• Precious metals  

• Scrap metal  

• Hydrocarbons  

• Electronic devices  

The purpose is to reduce VAT fraud and ensure proper tax collection in these sectors. 

Why is the Reverse Charge Mechanism Important? 

The reverse charge mechanism ensures that VAT is collected even when the supplier is located outside the UAE and is not registered with the FTA. 

It also prevents overseas suppliers from having to register for VAT in the UAE solely because they provide goods or services to UAE businesses. 

For UAE businesses, however, it is important to correctly identify transactions that fall under RCM and ensure they are properly reported in VAT returns to avoid penalties, interest, or compliance issues. 

Which Goods & Services Are Covered Under RCM? 

The categories covered under RCM have expanded significantly. Here is the full breakdown as of 2026: 

Category	Details	Effective Date
Imported Services	Consulting, IT, software, marketing, legal, advertising received from non-UAE-registered overseas suppliers	January 2018
Imported Goods	Goods brought into UAE from non-registered overseas suppliers	January 2018
Crude / Refined Oil & Hydrocarbons	B2B domestic supply for resale or energy production	January 2018
Electronic Devices	Mobile phones, computers, tablets and parts — sold B2B for resale or manufacturing, with buyer’s written declaration	October 2023
Precious Metals & Stones	Gold, silver, platinum, palladium, diamonds, pearls, rubies, sapphires, and emeralds — traded between UAE registrants (Cabinet Decision 127 of 2024	February 2025
Scrap Metal	Metal scrap traded between VAT-registered businesses — for resale or processing (Cabinet Decision 153 of 2025)	January 2026

How Does the Reverse Charge Mechanism Work? — Step by Step 

Here is exactly what happens when a UAE business receives an invoice from an overseas supplier: 

Step 1: Receive the Invoice from the Overseas Supplier 

The overseas supplier issues a commercial invoice without UAE VAT. 

Before processing the invoice, ensure that it includes: 

• Description of the goods or services  

• Invoice value  

• Invoice date  

• Supplier details  

Step 2: Determine Whether RCM Applies 

You should confirm that: 

• The supplier is not registered for VAT in the UAE  

• The goods or services are being used for business purposes  

• The supply is taxable and not exempt from VAT  

If all of the above conditions are met, the reverse charge mechanism will generally apply. 

Step 3: Calculate VAT at 5% on the Invoice Value 

You must calculate UAE VAT at the standard rate of 5% on the invoice amount. 

For example, if the invoice value is AED 10,000, the VAT under RCM would be AED 500. 

[Equation]5%×10,000=500 

This amount becomes your self-assessed output tax. 

Step 4: Record the VAT in Your Accounting Records 

The VAT calculated under RCM should be recorded in your books as: 

• Output tax, representing the VAT payable to the FTA  

• Input tax, if your business is eligible to recover VAT and makes taxable supplies  

For example: 

• Output VAT: AED 500  

• Input VAT: AED 500  

For businesses making fully taxable supplies, the net VAT impact is often nil, but the transaction must still be recorded and reported correctly. 

Step 5: Report the Transaction in Your VAT Return (Form 201) 

RCM transactions are reported within your regular VAT Return (Form 201). There is no separate form for reverse charge transactions. 

Typically: 

• Output tax under RCM is reported in Box 3  

• Recoverable input tax is reported in Box 10  

This is filed through EmaraTax. 

Even where the net tax payable is zero, the transaction must still be disclosed in the VAT return. 

Step 6: Maintain Proper Documentation 

Businesses should retain: 

• The original supplier invoice  

• VAT calculations  

• Accounting records  

• Supporting documents for the transaction  

The Federal Tax Authority may review or audit these records for up to five years. 

Good News from 2026 

From 1 January 2026, under Federal Decree-Law No. 16 of 2025, businesses are no longer required to issue a self-invoice for reverse charge transactions. 

This removes an additional paperwork requirement and simplifies VAT compliance for businesses dealing with overseas suppliers. 

How to Report RCM in VAT Return (Form 201) 

RCM transactions are reported within the standard VAT Return. There is no separate filing requirement. 

The key reporting areas are: 

• Box 3: Output tax on imported goods and services subject to reverse charge  

• Box 10: Recoverable input tax on the same transactions, where eligible  

For fully taxable businesses, the output VAT and input VAT generally offset each other, resulting in no additional VAT cost. 

Box in VAT 201	What to Enter	Type
Box 3	Output VAT on imported services and goods under RCM	Output Tax
Box 6	Taxable value of imports subject to RCM	Taxable Value
Box 10	Input VAT recovery on RCM supplies (if eligible)	Input Tax Recovery

If your business makes only taxable supplies, the output VAT and input VAT under the reverse charge mechanism generally offset each other, resulting in no additional VAT liability. 

However, if your business makes exempt supplies or partially exempt supplies — such as financial services or residential leasing — you may not be able to recover the full amount of input VAT. In such cases, the reverse charge mechanism can become an actual VAT cost to the business. 

RCM Compliance Checklist for UAE Businesses 

• Ensure your UAE VAT registration is active on EmaraTax before applying the reverse charge mechanism  

• Identify all transactions with overseas suppliers, particularly for IT, consulting, marketing, legal, and software services  

• Verify whether each supplier is registered for VAT in the UAE. If not, RCM will generally apply  

• For transactions involving electronics, precious metals, or scrap metal, obtain the required written declaration from the buyer  

• Include an appropriate reverse charge statement on invoices for qualifying domestic supplies, such as: “VAT to be accounted for by the recipient under the Reverse Charge Mechanism”  

• Report RCM output tax in Box 3 and recoverable input tax in Box 10 of Form 201 during each VAT filing period  

• Retain supplier invoices, declarations, VAT calculations, and supporting documentation for at least five years for possible FTA audits  

• Review your VAT credit balances regularly, as unused VAT credits older than five years may expire from 2026 onwards  

• Train your finance and accounting teams on the latest 2025 and 2026 VAT changes relating to RCM  

• If there is any uncertainty, seek advice from a qualified UAE VAT advisor before filing your VAT return  

How Mercurius Can Help 

At Mercurius, we simplify VAT compliance so businesses do not have to navigate complex reverse charge rules on their own. 

Whether you are dealing with overseas suppliers or domestic transactions that fall under RCM, our specialists help ensure your business remains fully compliant with UAE VAT regulations. 

We can support you with: 

• RCM applicability assessment to determine whether reverse charge applies to your transactions  

• Accurate VAT calculation and reporting to ensure proper self-assessment and disclosure in Form 201  

• VAT return filing through EmaraTax with timely and accurate submissions  

• Input tax optimisation to maximise eligible VAT recovery  

• Documentation and audit support to maintain proper records and assist during FTA reviews or audits  

• Ongoing VAT advisory to help you stay updated with the latest regulatory changes in 2025 and 2026  

Whether you are a startup, SME, or multinational business, Mercurius helps ensure that your VAT processes remain efficient, compliant, and risk-free. 

Mercurius at a Glance 

With more than 17 years of experience and a presence across over 60 countries, Mercurius supports individuals, startups, SMEs, and multinational businesses at every stage of their business journey in the UAE. 

From company formation in Dubai to accounting, tax, compliance, audit coordination, regulatory advisory, and company closure services, Mercurius provides end-to-end support tailored to the specific needs of each client. 

Our objective is to make doing business in Dubai simple, seamless, and fully compliant, allowing clients to focus on growth while we manage the legal, regulatory, and administrative requirements. 

Need Help with RCM Compliance?  

Our team at Mercurius specializes in UAE VAT compliance — from RCM advisory and VAT return filing to FTA audit support.  

Let us handle the complexity while you focus on your business.  

Visit: mercuriusteam.com  

Get in touch with a Mercurius VAT Expert today 

Dubai +(971) 585161322 

India +91 966 777 9615 

info@mercuriusteam.com