Are you aware of Reverse Charge Mechanism in UAE VAT?
If you import goods or services from outside the GCC countries Reverse Charge Mechanism is applicable in UAE.
As a a registered supplier making a taxable supply, you need to charge VAT and pay the same to the government. But, in the case of Reverse Charge Mechanism the responsibility of paying taxes is shifted from the supplier to the buyer.
Reverse charge mechanism was introduced in order to ensure that VAT is being collected on the supply of goods and services whose supplier is not a VAT registrant in UAE, but the supply has been made in UAE. Thus, the recipient or the buyer will be responsible to pay VAT to the government.
Following supplies will be liable to pay VAT on reverse charge mechanism according to the UAE VAT law:
- If you are a registered taxable person and imports goods or services for business purpose from outside GCC countries
- If you make any taxable supply of unprocessed or processed natural gas, or any hydrocarbons or any crude or refined oil to resell or to produce and distribute any form of energy to a buyer ( both the supplier and the buyer must be registered under UAE)
- Supply of goods or services by a supplier who is not a resident of UAE to a taxable person who is a resident of UAE.
Reverse Charge and Forward Charge
The difference between reverse charge and forward charge can be better explained to you with the following illustrations:
FORWARD CHARGE MECHANISM
- Firm A collects VAT of 5% from the supplier that is Firm B
- Firm B can claim the input tax and can adjust against the output tax liability
Reverse Charge Mechanism in UAE VAT
- Firm A does not charge VAT since they are not registered in UAE
- Firm B has to pay 5% VAT to the government
- Firm B can also claim input tax and can adjust against the output tax liability
Thus the concept of reverse charge mechanism helps you to differentiate between local and international suppliers.
If you have any doubt during this process call us 04 443 1604