The reverse charge mechanism is a method of imposing Value Added Tax under which the registered recipient, not the supplier, must account for and pay the tax due to the Authority; it applies mainly to imports of goods and services, and to specific domestic supplies designated by Cabinet Decisions, such as gold, diamonds and scrap metal.
Reverse Charge on Imports
The Decree-Law provides that where a taxable person imports concerned goods or concerned services for the purposes of their business, they are treated as having made a taxable supply themselves, and are responsible for all related tax obligations and for calculating the tax due on it, rather than the foreign supplier bearing that responsibility.
Reverse Charge on Gold and Diamonds
A Cabinet Decision permits the application of the reverse charge mechanism to the supply of gold and diamonds between registrants in the State; where a supplier supplies these goods to a registered recipient intending to resell them or use them in production or manufacturing, the supplier is not responsible for accounting for the tax and does not record it in their tax return, provided the registered recipient declares in writing the purpose of acquiring the goods and confirms they are registered.
Reverse Charge on Scrap Metal
Similarly, where a supplier supplies scrap metal to a recipient registered with the Authority intending to resell it or use it in processing, the supplier is not responsible for accounting for the tax related to that supply and does not record it in their tax return, and the recipient becomes responsible for accounting for the tax due and for all related tax obligations.
- Applying the reverse charge in these cases requires the recipient to submit a written declaration of the purpose of acquiring the goods and confirming they are registered with the Authority before the date of supply.
- These rules do not apply where the supply is subject to the zero rate, or where the supplier has not verified the recipient's registration through the means approved by the Authority.
- If the recipient does not submit the required declaration, the reverse charge provision does not apply to them, and they may not treat the goods as used for purposes that would entitle them to recover input tax.
Illustrative Example
Illustrative example: if a registered business imports gold bars from another registered supplier intending to remanufacture them, and submits a written declaration to that effect, the supplier does not account for tax on that supply; instead, the recipient business itself accounts for the tax in its own tax return.
Legal References
- Federal Decree-Law No. (8) of 2017 on Value Added Tax — Article (48)
- Cabinet Decision No. (25) of 2018 on the Mechanism for Applying Value Added Tax on Gold and Diamonds Between Registrants in the State — Article (2)
- Cabinet Decision No. (153) of 2025 on the Application of the Reverse Charge Mechanism on Trade in Scrap Metal Between Registrants in the State for Value Added Tax Purposes — Article (2)
For questions about your specific situation, you can ask the UAE Tax & Legislation Helper on Helpers, or consult a licensed chartered accountant.