The Reverse Charge Mechanism Explained

By Shihabudeen Pattasseri, FTA-Registered Tax Agent (TAAN 20056925) · Updated 2026-11-03

The reverse charge mechanism shifts the responsibility for accounting for VAT from the supplier to the customer. It applies mainly to imports of goods and services, and it catches out many businesses that forget to report it.

When the reverse charge applies

• Importing goods into the UAE
• Receiving services from a supplier outside the UAE
• Certain domestic supplies, such as gold and diamonds between registered dealers

How it works

Instead of the overseas supplier charging UAE VAT, you as the registered customer account for the VAT yourself. You report the output VAT on the transaction and, if the cost relates to your taxable supplies, recover the same amount as input VAT in the same return — so it is often VAT-neutral.

Why it still matters even when neutral

Even where the reverse charge nets to zero, you must report it correctly on your VAT return. Omitting it is a reporting error that the FTA can penalise, and it is not neutral if you make exempt supplies and cannot fully recover the input VAT.

Common mistakes

• Forgetting to apply the reverse charge on imported services
• Recovering input VAT without declaring the corresponding output VAT
• Applying it to supplies from UAE-registered suppliers, who charge VAT normally

Frequently asked questions

What is the reverse charge mechanism?

A rule where the registered buyer, rather than the overseas supplier, accounts for the VAT on imported goods or services.

Is the reverse charge VAT-neutral?

Often yes, because you declare and recover the same amount in one return — but only if you can fully recover the input VAT and you report it correctly.

Does it apply to UAE suppliers?

Generally no. Domestic suppliers who are VAT-registered charge VAT in the normal way, with limited exceptions such as gold and diamonds between dealers.

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