Definition

The Reverse Charge Mechanism is a VAT rule where the buyer, instead of the supplier, accounts for VAT on certain transactions. In the UAE, this typically applies to imports of goods and services.

Key points

• Shifts VAT liability to the buyer.
• Buyer records both output VAT and input VAT simultaneously.
• No cash flow impact if input VAT is recoverable.
• Ensures VAT is accounted for on cross-border supplies.

Practical example

A UAE company buys software from the US. The supplier doesn’t charge UAE VAT, but the UAE company records output VAT and input VAT in its return under reverse charge.

Why it matters

Reverse charge prevents VAT leakage on imports and is a common audit focus for the FTA.