Reverse charge mechanism: what it means in UAE tax.

What reverse charge mechanism means

Also called: Reverse charge, RCM.

The reverse charge mechanism moves the job of accounting for VAT from the supplier to the customer. The customer calculates the VAT on the purchase, reports it as output tax in its own return and, where the purchase is for taxable business use, deducts the same amount as input tax.

In the UAE it applies mainly to imports. When a registered business imports goods or services for its business, it is treated as making a taxable supply to itself. The same applies when a registered UAE business receives a supply with a place of supply in the UAE from a supplier with no UAE residence that does not charge VAT, such as an overseas software subscription.

There are also domestic reverse charge cases between registered businesses, for example certain oil, gas and hydrocarbon supplies, and metal scrap from 14 January 2026. For most SMEs the reverse charge is cash neutral, but only if both sides of the entry are made correctly.

How it works

• The buyer accounts for VAT at the rate that would apply if the supply were made in the UAE, usually 5%.
• The VAT is declared in the return for the tax period in which the date of supply falls.
• The buyer can then deduct the same VAT as input tax, to the extent the purchase is used for taxable supplies.
• From 1 January 2026 the buyer no longer issues a tax invoice to itself, but must keep the supplier's invoice and, for goods, the customs statement.
• For domestic reverse charge supplies such as metal scrap, the buyer must give written declarations before the date of supply and the supplier's invoice must state that the reverse charge applies.

Worked example

A Dubai marketing agency, registered for VAT, pays an overseas company for a design software subscription. The overseas company has no UAE presence and charges no VAT.

Subscription fee (converted to AED)	AED 20,000
VAT due under reverse charge at 5% (output tax)	AED 1,000
VAT deducted as input tax	AED 1,000
Net VAT payable on the subscription	AED 0

The reverse charge costs nothing in cash for a fully taxable business, but both entries must appear in the same return.

Common mistakes

• Recording only the input tax side, or leaving imported services out of the return because no VAT appeared on the invoice.
• Applying the reverse charge to an overseas supplier that is in fact registered in the UAE and charges VAT.
• Claiming the full input tax when the business also makes exempt supplies and must apportion.

The law

• Federal Decree-Law No. 8 of 2017 on Value Added Tax, Article 48 (reverse charge), as amended by Federal Decree-Law No. 16 of 2025 from 1 January 2026
• Cabinet Decision No. 52 of 2017 (Executive Regulation of the VAT law), Article 48, Clauses 3 to 5
• Cabinet Decision No. 153 of 2025 on the reverse charge on metal scrap, Article 2

Frequently asked questions

Do I need to issue a self-invoice for reverse charge purchases?

Not from 1 January 2026. The Ministry of Finance confirmed that Federal Decree-Law No. 16 of 2025 removed the self-invoice requirement. You must still keep the supplier invoice and, for imported goods, the customs statement.

Does the reverse charge apply if I am not VAT registered?

The import reverse charge applies to taxable persons. A person not registered for VAT pays VAT on imported goods before customs releases them.

Related terms

Import VAT · Place of supply · Input tax · Output tax · Tax invoice. See every term in the UAE tax glossary.

For the full picture, read our guide: Reverse Charge VAT in the UAE: When It Applies and How to Handle It.

Need help with VAT returns? See our VAT returns service.