The reverse charge in one paragraph. Under the reverse charge mechanism (RCM), the customer accounts for VAT instead of the supplier. The customer records output VAT (5% on the invoice value) in Box 3 of the VAT return and simultaneously claims the matching input VAT in Box 9 — net cash impact is nil if the customer makes fully taxable supplies. RCM applies to: (1) imports of goods into the UAE (handled through the FTA's import return mechanism, not the standard RCM boxes), (2) services received from non-residents under the B2B general place-of-supply rule, (3) specified goods on the FTA's reverse-charge list including gold and precious metals (Cabinet Decision 25/2018) and hydrocarbons and crude oil (Cabinet Decision 59/2017) between VAT-registered dealers. Non-residents making UAE supplies that fall outside RCM must register themselves — the RCM is not a universal workaround.
1. What the reverse charge mechanism does
The reverse charge mechanism (RCM) is a VAT accounting shortcut. Under the normal UAE VAT rules, the supplier charges 5% output VAT on an invoice; the customer pays the VAT-inclusive amount; the supplier remits the VAT to the FTA; the customer recovers the input VAT on their next return. Four steps, cash moves twice.
Under the reverse charge, the supplier charges no VAT. The customer accounts for both sides — output VAT (as if they'd made the supply) and input VAT (as if they'd received a normal VAT invoice) in the same return. Net cash impact is nil for a fully taxable customer. The mechanism exists because it would be administratively impractical to require every non-UAE supplier to register for UAE VAT just because their customer is in Dubai.
2. The three scenarios where UAE RCM applies
A. Imports of goods
Goods imported into the UAE from outside the GCC VAT territory are subject to import VAT at 5%, accounted for through a dedicated import return mechanism on EmaraTax. For VAT-registered importers, this is effectively a reverse-charge treatment — the importer self-accounts for the output VAT at the customs clearance stage and recovers the matching input VAT on the next return.
For non-VAT-registered importers, import VAT is payable at the border in cash and not recoverable — a real cost that often pushes small importers to register voluntarily.
B. Services received from non-UAE residents
Under the UAE VAT place-of-supply rules for B2B services, the general rule is that the supply is made where the customer is established. So an overseas consulting firm supplying services to a UAE-based client has made a UAE supply. The reverse charge mechanism then applies:
- Non-UAE supplier issues an invoice with no VAT
- UAE customer records 5% output VAT in Box 3
- UAE customer records matching 5% input VAT in Box 9 (subject to recovery rules)
The RCM covers most cross-border B2B services. The main exceptions follow specific place-of-supply rules for things like immovable property (where the property is), events (where the event takes place), and transport (where the transport takes place).
C. Specified goods — gold and hydrocarbons
Two Cabinet Decisions bring specific goods supplied between VAT-registered UAE businesses within the reverse charge:
- Cabinet Decision 25 of 2018 — investment-grade gold and precious metals, when traded between VAT-registered dealers. Retail sales of jewellery to end consumers are not covered.
- Cabinet Decision 59 of 2017 — hydrocarbons, crude oil and refined products, when supplied between VAT-registered oil and gas sector participants.
These specific-goods RCMs exist to reduce VAT cash-flow burden in high-value, high-turnover sectors.
3. How to account for RCM on the VAT return
UAE VAT201 return boxes relevant to RCM:
- Box 3 — Supplies subject to reverse charge: enter the net value of the supplies received under RCM, and the output VAT at 5%.
- Box 9 — Standard-rated input VAT: include the matching input VAT, subject to normal recovery rules (fully taxable supplier? recover all; partial exemption? apportion).
- Box 6 — Standard-rated supplies made via Cabinet Decisions 25/59: used by the supplier where they are supplying under the gold or hydrocarbons RCM — the amount is a disclosure, no output VAT is charged.
The matching output and input in Boxes 3 and 9 produce a nil net impact for fully taxable businesses. For partial-exemption businesses (e.g. financial services), the input VAT in Box 9 is restricted by the recovery percentage — leaving a real VAT cost.
4. Invoicing requirements
A supplier making a supply under the reverse charge must:
- Issue a tax invoice (if a UAE-registered supplier) with the normal invoice details
- Show the net value only — no VAT amount
- Include a clear statement that the supply is subject to the reverse charge, e.g. "Reverse charge: VAT to be accounted for by the recipient under Article 48 of Federal Decree-Law 8 of 2017" or the relevant Cabinet Decision reference for specified goods
- Not include a TRN on the invoice if the supplier is non-resident and not UAE VAT-registered
A UAE customer receiving a reverse-charge supply should retain the invoice as evidence for the input VAT claim and should maintain a reconciliation of RCM entries on the VAT return.
5. When the reverse charge does NOT apply
Common misunderstandings — the RCM is not available where:
- The non-resident supplier makes a B2C supply to a UAE consumer. The non-resident must register in the UAE and charge VAT directly, from the first supply (no threshold).
- The non-resident supplier makes a supply to a UAE business that is not VAT-registered. Same outcome — non-resident must register.
- The service falls under a specific place-of-supply rule that puts it outside UAE scope (e.g. services related to overseas property, overseas events).
- The supply is of goods physically within the UAE (not an import).
- The supply is of a specified good (gold, hydrocarbons) but the buyer is not VAT-registered — the standard 5% applies.
6. Four reverse-charge pitfalls
- Mis-recording in the wrong box — entering RCM transactions in standard output boxes rather than Box 3. FTA audits picks this up and often triggers a wider examination.
- Over-claiming input VAT on reverse-charge inputs where the business has partial exemption — the input VAT in Box 9 must be restricted by the recovery percentage, not claimed in full.
- Treating a B2C non-resident supply as RCM — RCM only works for B2B. Non-resident supplies to UAE consumers require the non-resident to register in the UAE.
- Missing the gold RCM on inter-dealer supplies — supplier charges 5% by default; buyer refuses to pay the VAT thinking RCM applies. Fix: both parties document that both are VAT-registered dealers and the supply qualifies for RCM, before the invoice is raised.