What Is the Reverse Charge Mechanism?
Normally, the supplier charges VAT and remits it to the FTA. Under the reverse charge mechanism (RCM), this responsibility shifts to the buyer. The buyer self-accounts for both output VAT (what they owe) and input VAT (what they can reclaim) in their VAT return.
This is governed by Article 48 of Federal Decree-Law No. 8/2017 (UAE VAT Law). The RCM ensures VAT is collected even when the supplier is outside the UAE or not VAT-registered.
When Does Reverse Charge Apply?
| Scenario | Legal Basis | Effective Since |
|---|---|---|
| Import of services from outside UAE | Article 48(1) | 1 Jan 2018 |
| Import of goods from outside UAE (for business) | Article 48(1) | 1 Jan 2018 |
| Supply by non-resident supplier to UAE VAT-registered buyer | Article 48(1) | 1 Jan 2018 |
| Hydrocarbons (crude oil, gas) for resale/energy production | Article 48(2) | 1 Jan 2018 |
| Electronic devices (phones, computers, tablets) B2B for resale/manufacturing | Cabinet Decision | 30 Oct 2023 |
| Precious metals & stones (gold, silver, platinum, diamonds) | Cabinet Decision 127/2024 | 26 Feb 2025 |
| Scrap metal B2B for resale/processing | Cabinet Decision 153/2025 | 14 Jan 2026 |
How RCM Works: Step by Step
Step 1: Receive Supply
You receive goods or services from a foreign supplier (or domestic supplier under RCM categories). The supplier’s invoice does not include UAE VAT.
Step 2: Self-Account for Output VAT
Calculate 5% VAT on the supply value. Report as output VAT in your VAT return (Box 3 for imports, Box 6/7 for other RCM supplies).
Step 3: Claim Input VAT (If Eligible)
If the purchase is for taxable business purposes, claim matching input VAT in Box 10. Net effect = zero.
Step 4: Retain Documentation
Keep supplier invoices, customs declarations, and import documentation. From 2026: no self-invoice required.
Practical Example
| Item | Amount |
|---|---|
| UAE company hires Indian IT consultant | AED 100,000 (service fee) |
| Output VAT (self-accounted at 5%) | AED 5,000 (Box 3) |
| Input VAT recovery (if for taxable supplies) | AED 5,000 (Box 10) |
| Net VAT cost | AED 0 |
If the imported service is used for exempt supplies (e.g., certain financial services), input VAT cannot be recovered — the AED 5,000 becomes a real cost.
💬 Not Sure How to Report Reverse Charge?
Send us your purchase invoices — we’ll map each one to the correct VAT return box and ensure correct RCM reporting.
2026 Changes: What’s New
Federal Decree-Law No. 16/2025 (effective 1 January 2026) brings two critical changes:
| Change | Before 2026 | From 1 Jan 2026 |
|---|---|---|
| Self-invoicing | Required for all RCM transactions | Removed — retain supplier invoices + customs docs instead |
| Anti-evasion (Article 54 bis) | Input VAT recoverable if valid invoice held | FTA can deny input VAT if transaction linked to evasion and buyer knew/should have known |
Key risk: If the reverse charge should have applied but the supplier incorrectly charged VAT (and didn’t remit it to FTA), the buyer may lose input VAT recovery under the new anti-evasion rules. Always verify whether RCM applies before paying a supplier-charged VAT invoice.
Common Mistakes to Avoid
• Not reporting RCM at all — forgetting to self-account for output VAT on imported services
• Reporting output but not claiming input — overpaying VAT unnecessarily
• Paying VAT to a foreign supplier — foreign suppliers should not charge UAE VAT; the buyer must self-account
• Wrong VAT return box — different RCM categories go in different boxes (3, 6, 7, 9)
• Still issuing self-invoices in 2026 — no longer required; retain supplier documentation instead
⚠️ Key Takeaway
If you import services, buy from foreign suppliers, or trade in hydrocarbons, electronics, precious metals, or scrap metal — you must self-account for VAT under the reverse charge mechanism. Get it wrong and you face penalties plus lost input VAT. Professional VAT filing from AED 149/return.