Reverse Charge Mechanism UAE
What is Reverse Charge Mechanism UAE (RCM)?
The UAE VAT law notifies specific supplies under the reverse charge mechanism UAE (RCM). When a transaction involves notified supplies, the buyer of goods or recipient of services is responsible for paying the tax to the government, unlike the forward charge, where the supplier is liable to pay the tax.
The Aim of Introducing this Concept in the UAE
The government has introduced the concept of the reverse charge mechanism UAE to ensure that the VAT is collected when a supplier is not a taxable person; however, the supply has been made in the state of UAE. Accordingly, the buyer or recipient is considered a person making taxable supplies and will be held responsible for paying VAT to the government.
When Does This Concept Apply in the UAE?
The reverse charge mechanism UAE is applicable in the following cases:
- Import of goods from other GCC and non-GCC countries. The supplier of these goods must be located in another country and may or may not have a business in the UAE.
- Purchase of goods from a designated zone.
- Supply of gold and diamonds.
- Purchase of gold and diamonds for resale or further production.
- Supply of hydrocarbons for resale by a registered supplier to a registered recipient in the UAE.
- Supply of refined oil by a registered supplier to a registered recipient in the UAE.
- Supply of processed natural gas by a registered supplier to a registered recipient in the UAE.
- Production and distribution of any form of energy supplied by a registered supplier to a registered recipient in the UAE.
What are the Requirements for the Reverse Charge Mechanism UAE?
There are requirements for the reverse charge mechanism UAE, including:
- Must be registered under VAT.
- Account for Tax on the value of the Concerned Goods or Concerned Services.
- Keep proper records.
- Invoice and other documents should be maintained to substantiate the tax payment and input tax claim.
- Remit VAT and claim input if eligible.
- All supporting documents shall explicitly indicate that the transaction is on a reverse charge basis.
Responsibilities of a Recipient Under the Reverse Charge Mechanism
Under RCM, the buyer of goods or recipient of services will be liable to pay tax to the government. Thus, the concerned person must discharge the below responsibilities under the reverse charge mechanism UAE:
- Determine the value of supply on which VAT must be levied.
- Account for the VAT due on reverse charge supplies.
- Pay the VAT to the government.
- Claim Input Tax, based on eligibility.
- Maintain the records as proof of tax payment and claim input tax.
How Can Accountants Help to Minimize the Risk of Applying Reverse Charge Mechanism UAE?
Accountants can help to minimize the risk of applying the Reverse Charge mechanism UAE in the following ways:
- Proper recording.
- Accurate claiming of VAT.
- Arrangement and collection of import records.
- Proper Tax Filing.
AHG’s Role in Reverse Charge Mechanism UAE
AHG Chartered Accountants has been providing its skillful services to the business world for the last so many years fulfilling the needs of its clients with complete satisfaction. We can assist you deal with the VAT filing of your business in a better way and help you comply with the VAT rules on Reverse Charge Mechanism UAE.
Our experts will analyze the VAT issues and prepare better solutions appropriate to your business based on its nature and the needs of the owner. Our Accountants can give you effective advice on the Reverse Charge Mechanism UAE and fulfill VAT compliance. We can help you in filing VAT returns and audited financial statements.
Do not hesitate to contact us now. AHG is always there for your relief!