VAT usually works in a simple direction: your supplier charges you VAT, collects it, and pays it to the FTA. The reverse charge mechanism (RCM) flips that — and if your business regularly imports goods or services, or deals with non-resident suppliers, understanding RCM isn't optional.

How reverse charge works

Under RCM, the responsibility for accounting for VAT shifts from the supplier to the recipient — you, the buyer. Instead of your supplier charging VAT on the invoice, you calculate the VAT yourself (usually the standard 5% rate) and report it in your own VAT return, as both output VAT (what you owe) and input VAT (what you can potentially reclaim). For most fully taxable businesses, this nets out to zero cash impact — but it still has to be reported correctly.

When it typically applies

  • Imports of goods or services from outside the UAE
  • Supplies from non-resident suppliers with no UAE establishment
  • Certain domestic B2B supplies specified by Cabinet Decision (for example, VAT-registered businesses trading in scrap metal, following a rule change effective January 2026)

What changed recently

A 2026 amendment removed the requirement for businesses to issue self-invoices under RCM. In practice, this means you're now expected to retain the supplier's original invoice and relevant import documentation to support your VAT accounting, rather than generating a separate self-invoice for every reverse-charged transaction — a welcome simplification, but one that shifts the emphasis onto keeping supplier records complete and audit-ready.

Where businesses get this wrong

The most common mistake we see is treating RCM as "no VAT due" and forgetting to report it at all. Because RCM is usually cash-neutral, businesses sometimes assume it's not worth tracking carefully — but the FTA still expects it reported in the correct boxes of your VAT return, and getting it wrong (or missing it entirely) can trigger administrative penalties even where no tax was actually owed.

A second common issue: if the imported service relates to an exempt supply — for example, certain financial services — the input VAT cannot be reclaimed, and the reverse-charged VAT becomes a genuine cost rather than a wash.

Our recommendation

If your business imports services, works with overseas suppliers, or trades in goods newly brought under RCM rules, it's worth having your VAT return mapping reviewed to confirm reverse charge transactions are being captured correctly.