Normally the taxable person providing supplies to customers is responsible for charging VAT and also liable to pay the VAT charged to the tax authority. In case of Reverse Charge Mechanism (RCM), it is the buyer of goods/ services that levies VAT to itself instead of the supplier of the goods/ services. The major change between a reverse and forward charge is the change in responsibility with regards to paying VAT as in a reverse charge the responsibility is shifted from supplier of the goods/ service to the buyer of it.
When Reverse Charge Mechanism becomes applicable in the UAE?
The RCM is applicable in the UAE when a taxable person operating its activities in the UAE purchases goods or receives services from outside the GCC implementing states. Under this mechanism the taxable person will not be required to pay tax when at the time of importing goods or services.
Reporting VAT transaction under Reverse Charge Mechanism
In a reverse charge the buyer is the one that is responsible for reporting the VAT transaction. The buyer receiving a taxable supply using RCM is responsible for reporting both the VAT on purchases (input VAT) and VAT on sales (Output VAT) in the same tax return.
In simple words the reverse charge is the VAT amount that the taxable person would have paid against goods/ services if they were purchased/ rendered from a taxable person in the UAE. The importer of goods/ services is required to disclose the VAT amount pertaining to taxable supply made using RCM both under Output VAT as well as input VAT section of the tax return of that specific period. This mechanism basically eliminates the requirement for the overseas supplier of goods/ services to register under VAT in the UAE.
As per VAT law in the UAE, the RCM becomes applicable on the following taxable supplies only if certain conditions mentioned in the Executive regulations of the VAT law are met:
• Purchase of concerned products or services (import) for business purpose.
• Supply of any refined or crude oil, processed or unprocessed natural gas, or any hydrocarbons for production and distribution of any type of energy by a taxable person to another taxable person in the UAE.
•Supply of products/ services by a supplier who is not resident of the UAE to a registered taxable entity/ person
who is a resident of the UAE.
How Push Digits can help you with Professional VAT Consultancy Services
Our experienced Tax Consultancy Team is available at a call or email to serve you with our Professional Tax / VAT Consultancy Services in which we will perform your VAT returns filing and we can also help you implement VAT across your Organization as well as train your staff for acting on required processes and procedures. Contact our Experienced Partner today at +971503958931 / [email protected] for a consultation meeting.