Reverse Charge Mechanism is incorporated in UAE Value Added Tax Law with a view to avoid tax evasion on any taxable supplies. If the supplier does not possess business in UAE tracking transactions and ensuring VAT compliance is not practical option for Federal Tax Authority. Hence, recipients of taxable supplies who are residents of the UAE are made to pay Value Added Tax on reverse charge basis. It mainly applies on cross-border transactions and eliminates the obligation for the overseas seller to register for VAT in the UAE.
Exceptions: –
• When goods are imported with the intention of transferring the same to another GCC State, the place of supply of import is still the UAE, but
• The importer must pay import VAT without availing the reverse charge and cannot recover this VAT
• This import VAT is recoverable in the GCC State to which the goods are transferred
• When the import VAT was recovered in the UAE under the expectation that goods would not be transferred to another GCC State, but at a later date if they are moved to another GCC State, the importer will be required to repay the import VAT by treating the transfer as a deemed supply subject to VAT.
