Reverse Charge VAT in the UAE: When It Applies and How to Account for It

VAT8 min read·Published 26 March 2026

What Is the Reverse Charge Mechanism?

The reverse charge is a VAT accounting method where the buyer, not the seller, accounts for the VAT. In the UAE, it applies primarily when you import services from outside the country.

Normally, the supplier charges VAT and remits it to the tax authority. Under the reverse charge, the supplier does not charge UAE VAT (they are not registered in the UAE). Instead, you — the UAE business — "self-charge" the VAT: you declare both the output VAT (as if you had charged yourself) and the input VAT (as if you had paid it). The net effect is usually zero, but both amounts must appear on your VAT return.

When Does Reverse Charge Apply?

The reverse charge applies in the UAE when all of the following conditions are met:

The supplier is not registered for UAE VAT (typically because they are based outside the UAE)
The supply is a taxable supply (standard-rated, not exempt)
The place of supply is the UAE (for services, this is generally where the customer belongs)

Common scenarios:

SaaS subscriptions from US or EU companies (Slack, AWS, Google Workspace, HubSpot)
Consulting services from firms based outside the UAE
Legal or accounting advice from international firms
Software development outsourced to an overseas team
Marketing services from agencies outside the UAE
Design and creative work from freelancers abroad

How to Account for Reverse Charge

The accounting for reverse charge involves recognizing both output and input VAT simultaneously:

Step 1: Calculate the VAT

Apply the 5% standard rate to the value of the imported service. If you paid USD 10,000 for consulting (AED 36,700 at the exchange rate on the date of supply), the VAT is AED 1,835.

Step 2: Record the output VAT

Debit: Reverse Charge VAT Expense (or the relevant expense account) — AED 1,835 Credit: VAT Payable (output) — AED 1,835

Step 3: Record the input VAT

Debit: VAT Receivable (input) — AED 1,835 Credit: Reverse Charge VAT Recovery — AED 1,835

The net effect on your cash: zero. You owe AED 1,835 in output VAT but can recover AED 1,835 in input VAT. The two cancel out — provided the imported service is used for making taxable supplies.

Warning: If the imported service is used for exempt supplies, you can only recover the input VAT partially or not at all. The output VAT is still due in full.

Reporting in Your VAT Return

Reverse charge amounts appear in two places on your VAT return:

Box 3 — Supplies Subject to Reverse Charge: The value of the imported services (AED 36,700 in our example)
Box 6 — Due Tax: Includes the output VAT from the reverse charge (AED 1,835)
Box 7 — Recoverable Tax: Includes the input VAT from the reverse charge (AED 1,835), subject to normal recovery rules

The amounts must be converted to AED at the UAE Central Bank exchange rate on the date of supply. This is the date the service was performed or the invoice date, whichever is applicable.

A common mistake: reporting reverse charge only in Box 3 but forgetting to include the VAT amounts in Boxes 6 and 7. This creates a discrepancy that the FTA can flag.

Practical Examples

Example 1: AWS Cloud Hosting

Monthly AWS bill: USD 2,000 (AED 7,340). Reverse charge VAT: AED 367. Report AED 7,340 in Box 3. Add AED 367 to Box 6 (output) and Box 7 (input). Net VAT impact: zero.

Example 2: UK Legal Advice

Legal fees: GBP 5,000 (AED 23,400 at the date of supply). Reverse charge VAT: AED 1,170. Report AED 23,400 in Box 3. Add AED 1,170 to Box 6 and Box 7.

Example 3: Freelancer Design Work from India

Design fee: USD 3,000 (AED 11,010). Reverse charge VAT: AED 550.50. Same treatment: Box 3 = AED 11,010. Box 6 += AED 550.50. Box 7 += AED 550.50.

Note: if any of these services were used for making exempt supplies, the Box 7 amount would be reduced or eliminated.

How Maya Finance Handles Reverse Charge

When you categorize a payment to a foreign supplier in Maya Finance, the system automatically:

Identifies that reverse charge may apply (based on the supplier's country and VAT status)
Calculates the 5% reverse charge VAT in AED
Creates the dual journal entries (output and input VAT)
Populates Box 3, Box 6, and Box 7 of your VAT return

No manual calculations, no separate spreadsheets, no risk of forgetting to report the reverse charge. It is built into the transaction flow.

Frequently asked questions

Does reverse charge VAT cost me money?

Usually not. The output VAT and input VAT from reverse charge cancel out, resulting in a net zero effect — provided the imported service is used for making taxable supplies. If the service is used for exempt supplies, you still owe the output VAT but may not be able to recover the input VAT.

Do I need to apply reverse charge on every foreign invoice?

Only on imported services where the place of supply is the UAE. Physical goods imported into the UAE are subject to customs duty and import VAT at the border, not reverse charge. For services, if the supplier is outside the UAE and not UAE VAT-registered, reverse charge generally applies.