VAT in UAE: What is reverse charge mechanism, and how it works
Dubai - Reverse charge is only applicable if purchases are made outside the UAE
In a normal supply transaction, a seller is required to pay value added tax (VAT) to government on supplies made by him. In reverse charge, buyer is required to pay VAT to government on purchases made by him, according to Jai Prakash Agarwal, manager, Oracle Implementation, Aster DM Healthcare.
"In the context of the UAE, reverse charge is only applicable if purchases are made outside the UAE. If all purchases are made locally, reverse charge is not applicable," he said.
The reverse charge, according to Agarwal, is required when imports are made from outside UAE and seller is from another country, which may or may not have a business in UAE.
Since a seller does not have business in UAE, it will be difficult for the tax authorities to track these sellers or suppliers. Hence, buyers who are residents of UAE are made responsible to charge VAT on reverse charge basis.