Imported services & VAT, explained
Normally the seller charges VAT and pays it to the FTA. Under the reverse charge mechanism, that duty flips to the buyer: you calculate 5% on what you bought, declare it as your output VAT, and claim it back as input VAT on the same return. No cash changes hands, but the reporting has to be exactly right. This guide shows when reverse charge applies in the UAE and how to account for it without errors.
The basics
Reverse charge sounds complicated, but the idea is simple. VAT still gets declared and paid to the FTA, the only thing that changes is who declares it.
In a standard domestic sale, the supplier adds 5% VAT to the invoice, collects it from the customer, and pays it to the FTA on the next VAT return. The buyer, if VAT-registered, reclaims the 5% as input VAT. Cash moves for the VAT amount, from buyer to seller, then seller to the FTA.
Under reverse charge, the supplier issues the invoice with no VAT added. The buyer calculates 5% itself, declares that amount as output VAT on its own return, and claims the same amount as input VAT on the same return. No VAT cash changes hands between buyer and seller at all.
Take a Dubai business hiring a UK consultancy. The UK firm has no UAE presence, no TRN, and no way to file an EmaraTax return, so asking it to charge UAE VAT would collect nothing. The reverse charge fixes this by putting the obligation on the party the FTA can actually reach: the UAE buyer. The same logic applies to certain domestic supplies, like gold and hydrocarbons between registrants, where the recipient is better placed to account for the tax than the seller.
Scope
Reverse charge does not apply to every purchase. It applies in specific situations the law names, and nowhere else. Here are the four that matter:
Everything else follows the normal rule: the supplier charges 5% and the buyer reclaims it. If your supply is not in one of these four buckets, do not apply reverse charge to it. Our VAT services team reviews supply chains specifically to flag which purchases fall under reverse charge.
Accounting
Two entries, one return. Get both of them right and a fully taxable business ends up paying nothing extra on the transaction.
On your EmaraTax VAT return, enter the net value of the supply in the box for supplies subject to the reverse charge provisions. Calculate 5% on that value and include the result in your output tax. This is you telling the FTA: this is the VAT I owe on what I bought.
On the same return, claim the same 5% as recoverable input tax, provided you are entitled to recover it. A business making only taxable supplies recovers the full amount, so the two entries cancel out and the net VAT effect is zero. If you make exempt supplies too, you can only recover the portion linked to your taxable activity.
The supplier's invoice should state that the supply is subject to reverse charge and show no VAT added. You must keep that invoice, your 5% workings, and for imported services the supporting evidence: the contract or engagement letter, proof of payment, and anything showing the service came from outside the UAE. Records must be kept for five years.
The part most returns get wrong is not the maths but the boxes: reverse-charge supplies have their own box on the return, separate from your standard-rated sales. Putting them in the wrong box is one of the first things an FTA reviewer checks. Our VAT return filing guide walks through each box step by step.
Worked example
A Dubai agency, VAT-registered and making only taxable supplies, engages a UK firm for AED 100,000 of consulting. The UK invoice shows no UAE VAT. Here is exactly what goes on the return.
Step 1, the supply value: AED 100,000, entered in the return's box for supplies subject to the reverse charge provisions.
Step 2, output VAT: 5% of AED 100,000 = AED 5,000, included in the return's output tax. This is the VAT the agency declares as the buyer.
Step 3, input VAT: AED 5,000 claimed as recoverable input tax on the same return, because the agency makes only taxable supplies.
Net effect: AED 5,000 output minus AED 5,000 input = nil. No VAT cash leaves the agency, but both entries are on the return and the FTA can see the full trail. Now flip one fact: if the agency also made exempt supplies, it could only recover part of that AED 5,000, and the unrecovered portion becomes a real cost.
The golden rule this example shows: reverse charge is a reporting exercise, not a payment, right up until your recovery position is less than 100%. Reconciled monthly books make sure these supplies are never missed in the first place.
Avoid these
The classic error. The foreign invoice has no VAT line, so nothing in the accounts flags it, and the supply never reaches the return. FTA audits find these routinely, and the undeclared output tax is assessed with penalties.
Reverse charge is not a choice you can make because it's convenient. It applies only where the law names it. Using it on ordinary domestic purchases means the supplier failed to charge VAT and you failed to declare it correctly.
No contract, no proof of payment, no workings showing the 5% calculation. When the FTA asks how you arrived at the figure, "we estimated" is not an answer that survives a review.
If you make exempt supplies, recovery is limited to the taxable portion. Claiming the full AED 5,000 from the worked example while half your activity is exempt overstates your recovery, and the excess comes back as a liability.
Zero-rated and reverse charge are different boxes with different outcomes. Zero-rated means the supply is reported at 0%; reverse charge means 5% is calculated, declared and claimed. Mixing them up distorts the whole return.
A UK or US supplier has no UAE TRN and files nothing with the FTA. If you wait for them to sort out UAE VAT, you will wait forever, while the obligation sits with you from the date of the supply.
Next steps
Reverse charge is one piece of a bigger VAT picture. Start with our complete UAE VAT guide for the full framework, then use our VAT return filing guide to place every figure in the right box. Our VAT services team reviews client purchase ledgers specifically to catch imported services and other reverse-charge supplies before they turn into assessments.
Browse the full resources library, or talk to us directly:
Reverse charge FAQs
No. You declare the VAT once as output tax and, if you are entitled to recover it, claim the same amount once as input tax on the same VAT return. The two entries offset each other, so a fully taxable business pays a net of zero on the transaction.
Yes. Reverse charge applies where the recipient is a VAT-registered person. If you are not registered, there is no VAT return on which to declare the output tax, and the supplier should generally charge VAT in the normal way where required.
Yes, in the specific cases the law allows, such as supplies of gold and diamonds between registrants and supplies of hydrocarbons. Reverse charge is not only for foreign suppliers; it also applies to certain domestic supplies between registered businesses where the legislation shifts the VAT duty to the buyer.
The EmaraTax VAT return has a dedicated box for supplies subject to the reverse charge provisions. You enter the net value of the supply there, declare the 5% you calculated as part of your output tax, and claim the same amount as input tax in the recoverable tax section if you are entitled to recover it. Our VAT return filing guide walks through the boxes step by step.
No, and this is a common trap. Foreign VAT on an invoice from a UK or EU supplier is not UAE VAT and cannot be recovered on your UAE return. You must still account for 5% UAE VAT under the reverse charge mechanism on the imported service.
Keep the supplier invoice showing the supply is subject to reverse charge, plus evidence of the import such as the contract or engagement letter, proof of payment, and your workings showing the 5% calculation. Records must be kept for five years and be ready for an FTA review. We can check your position free.
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