E-invoicing in UAE
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Last updated at
May 30, 2025
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Book NowUnder the UAE VAT Law, when a registered supplier provides a taxable supply. It is their responsibility to charge VAT, collect it from the recipient, and remit to the government. This is known as the forward charge mechanism.
The following guide provides a comprehensive explanation of the Reverse Charge Mechanism within the context of UAE VAT regulations.
The method of collecting VAT, where the responsibility to account for VAT changes from the supplier to the recipient. It is particularly a relevant method when the supplier is not registered under UAE VAT. Also ensuring that VAT is still accounted for on taxable supplies.
As said earlier, the UAE VAT Law prescribes specific categories of supplies that fall under the scope of Reverse Charge Mechanism. In transactions involving such notified supplies, the obligation to account for and pay VAT, shifts from the supplier to the purchaser of goods or the recipient of services. This is in contrast to the forward charge mechanism, where the supplier remains responsible for the VAT liability.
The primary distinction introduced by the RCM is the transfer of tax liability from the supplier to the buyer. The government implemented the reverse charge mechanism to ensure the proper collection of VAT in situations where the supplier is not a taxable person, yet the supply takes place within the UAE. As a result, under RCM, the buyer or recipient is treated as the party making a taxable supply and is thereby required to account for and remit the corresponding VAT to the government.
Difference between regular invoicing and invoicing under RCM.
For example: SmartTech Trading LLC, a VAT-registered business in Abu Dhabi, imports smartphone accessories worth AED 8,000 from Global Gadgets Ltd, a supplier based in Singapore.
Supplier, ie, the Global Gadgets Ltd, issues an invoice for AED 8,000 without charging VAT.
The buyer, ie, SmartTech Trading LLC, calculates VAT at 5% of AED 8,000, that is, AED 400.
SmartTech Trading LLC records this AED 400 VAT as both:
The transaction is recorded, in the VAT Return Form 201, under the relevant reverse charge sections (Boxes 3, 6, and 10).
It should be noted that the buyer is in charge of figuring out, declaring, and paying the VAT directly to the FTA even when the supplier is located abroad and is not registered for VAT in the UAE.
Federal Decree-Law No. 8 of 2017 on Value Added Tax serves as the foundation for the UAE VAT system's Reverse Charge Mechanism (RCM). Article 48 provides a detailed explanation of it. The circumstances under which the RCM is applicable are outlined in this law.
The onus of paying VAT passes from the provider to the buyer under the RCM. This normally occurs when the provider is located outside of the UAE. The VAT must be calculated and paid immediately to the Federal Tax Authority by the UAE company that receives the products or services.
Even for imports from non-resident providers that aren't registered for VAT in the UAE, this method guarantees that VAT is collected correctly.
The UAE VAT Law specifies certain supplies that are subject to the Reverse Charge Mechanism and has outlined specific conditions for their application within the UAE Executive Regulations.
Note that, in order for the reverse charge rules to be applicable, each of the above mentioned supply categories, must meet certain requirements outlined in the UAE VAT Executive Regulations.
To remain compliant with the RCM provisions, under the UAE VAT regulations, businesses should adhere to the following procedures:
The buyer of products or the recipient of services is now responsible for paying VAT to the government under the RCM. As a result, the accountable party must carry out the following obligations:
In the United Arab Emirates, businesses subject to the Reverse Charge Mechanism for Value Added Tax compliance, typically don't require a specific standalone form. Instead, RCM-related transactions are reported within the standard VAT Return Form 201. To get the most current and relevant forms or guidelines, businesses should consult the Federal Tax Authority's official website. The FTA provides a comprehensive repository of VAT-related resources, including guides, public clarifications, and any necessary forms.
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