When does reverse charge mechanism apply?

It applies on imports, hydrocarbons supply, and cross-border services to UAE businesses.

Can a buyer recover VAT paid under RCM?

Yes, if goods or services are used for taxable supplies, the buyer can claim input VAT.

What records are needed for RCM?

Invoices, import documents, customs proof, and VAT return entries are required.

How can accountants help with RCM?

They ensure proper recording, VAT filing, and correct claims under the law.

Reverse Charge Mechanism Dubai UAE

Reverse charge mechanism Dubai UAE is an important part of VAT law. In the normal rule, the supplier collects VAT from the buyer and pays it to the government. This is called forward charge mechanism. Under reverse charge mechanism (RCM), the buyer or recipient must pay VAT directly to the government. This shifts the tax duty from the seller to the buyer.

When Reverse Charge Mechanism Applies

RCM applies in specific cases under UAE VAT Law. Article 48 of the Decree-Law sets the rules.

Cases where RCM applies:

When a taxable person imports goods or services for his business.
When crude oil, refined oil, natural gas, or hydrocarbons are supplied and the buyer plans to resell or use them for energy.
When cross-border supplies occur and the foreign supplier has no VAT registration in UAE.

The buyer must calculate the VAT and pay it to the FTA. He may also claim input VAT if eligible.

Why Reverse Charge Mechanism Exists

The reason for RCM is to prevent tax evasion. If a supplier outside the UAE sells goods or services into the country, the FTA can’t easily track them. By shifting the duty to the UAE resident buyer, the system ensures VAT is collected. RCM applies mostly on imports and cross-border services. This avoids the need for foreign sellers to register in UAE.

Exceptions in RCM

Some exceptions exist in GCC rules.

If goods are imported with intent to transfer to another GCC state, the importer must pay VAT without reverse charge. He can reclaim VAT in that GCC state.
If goods were taxed in UAE and later moved to another GCC state, the importer must repay import VAT as a deemed supply.

These exceptions show why proper planning is needed.

Requirements for Using Reverse Charge Mechanism

A company using RCM must:

Be registered under VAT.
Calculate VAT on the value of imported goods or services.
Keep records and documents like invoices and import notes.
File VAT return showing output tax and claim input tax if eligible.
State on the invoice that the supply is under reverse charge.

Practical Illustration of RCM

A UAE company imports goods worth AED 10,000 from the UK. The UAE buyer must calculate 5% VAT = AED 500. He declares AED 500 as output VAT. If he uses goods for taxable supplies, he can claim the same AED 500 as input VAT. This makes the process tax neutral but transparent.

Responsibilities of a Recipient Under RCM

A buyer under RCM has clear duties:

Calculate VAT payable to the FTA.
Account for VAT as output tax in his VAT return.
Claim input credit if rules allow.
Maintain invoices, vouchers, and customs records.

Benefits of RCM for Importers

RCM brings benefits to UAE importers.

Importers link their customs code with TRN for more transparency.
They can recover VAT paid under RCM as input tax.
It ensures compliance and avoids penalties for missed taxes.
It builds trust with regulators and trading partners.

How an Accountant Helps with RCM

RCM can be tricky without expert support. An accountant helps by:

Recording imports properly in VAT books.
Claiming VAT correctly through VAT 201 return form.
Arranging and collecting import records.
Filing VAT returns without error.
Advising on eligibility of input claims.

A trained accountant reduces risk of mistakes and saves money in audits.

Role of Mubarak Al Ketbi (MAK) Auditing

Mubarak Al Ketbi (MAK) Auditing provides professional help for VAT compliance in Dubai. Our team has years of experience handling reverse charge issues for businesses of all sizes. We support you in:

VAT registration and filing.
Reverse charge documentation.
Audited financial statements.
Bookkeeping and compliance review.
CFO services and tax consultancy.

We also help firms manage software, due diligence, and accounting solutions. Our goal is client satisfaction with reliable service.

What Can Help 🥇

Mubarak Al Ketbi (MAK) Auditing helps your business manage reverse charge mechanism smoothly. Our experts handle VAT rules, reduce risks, and guide your compliance. With our support, your firm avoids penalties and saves time. Remember, a stitch in time saves nine, because early planning prevents costly mistakes.

For more information visit our office:
Saraya Avenue Building – Office M-06, Block/A, Al Garhoud – Dubai – United Arab Emirates
Contact/WhatsApp: +971 50 276 2132