The UAE VAT Law will be introduced and implemented across UAE on 01st January 2018 at a flat rate of 5%. Let us understand UAE VAT Reverse Charge Mechanism.
Usually, the VAT liability is to be discharged by the supplier of goods/ service or both.
However, in specific cases, the liability to pay tax is applicable on the recipient of the supply instead of the supplier. This is known as UAE VAT Reverse Charge Mechanism (RCM).
According to Article 48 of VAT Law, in cases where the taxable person imports concerned goods or concerned services for the purposes of his business, then he shall be treated as making a taxable supply to himself. He shall be responsible for all applicable taxes.
The Executive Regulation shall specify conditions and instances where UAE VAT Reverse Charge Mechanism applies and additional obligations related to record keeping for tax calculated according to the RCM.
Article – 48: UAE VAT Reverse Charge Mechanism
1. If the Taxable Person imports Concerned Goods or Concerned Services for the purposes of his Business, then he shall be treated as making a Taxable Supply to himself and shall be responsible for all applicable Tax obligations and be accounting for Due Tax in respect of these supplies.
2. As an exception to Clause (1) of this Article, in case the final destination of the Goods when entering the State is another Implementing State, the Taxable Person shall pay the Due Tax on Import of Concerned Goods pursuant to the mechanism specified by the Executive Regulation of this Decree-Law.
3. If a Registrant makes a Taxable Supply in the State to another Registrant of any crude or refined oil, unprocessed or processed natural gas, or any hydrocarbons, and the Recipient of these Goods intends to either resell the purchased Goods as crude or refined oil, unprocessed or processed natural gas, or any hydrocarbons, or use these Goods to produce or distribute any form of energy, the following rules shall apply:
a. The Registrant making the Supply shall not charge Tax on the value of the supply of the Goods referred to in this paragraph.
b. The Recipient of the Goods shall calculate the Tax on the value of the Goods supplied thereto and shall be responsible for all applicable Tax obligations and for calculating the Due Tax in respect of such supplies.
4. The provisions of Clause (3) of this Article shall not apply in any of the following situations:
a. Where, before the Date of Supply, the Recipient of Goods has not provided a written confirmation to the supplier that his acquisition of the Goods is for the purpose of resale.
b. Where, before the Date of Supply, the Recipient of Goods has not provided a written confirmation to the supplier that he is a Registrant and the supplier has not verified the Tax Registration of the Recipient of Goods by means approved by the Authority.
c. Where the Taxable Supply would be subject to Tax at the rate of 0% in accordance with Clause (1) of Article (45) of this Decree-Law.
d. Where the Taxable Supply includes a supply of Goods or Services other than the Goods referred to in Clause (3) of this Article.
5. Where a Recipient of Goods of any crude or refined oil, unprocessed or processed natural gas, or any hydrocarbons confirms in writing to the supplier that he is a Registrant for the purposes of applying Clause (3) of this Article, the following shall apply:
a. The supplier shall not be liable for calculating the Tax in relation to the supply unless he was aware or supposed to be aware, that the Recipient was not a Registrant at the Date of Supply.
b. The Recipient shall be liable for the calculation of any Due Tax in respect of the supply.
6. If the supplier mentioned in paragraph (a) of Clause (5) of this Article is supposed to be aware that the Recipient of Goods was not registered at the Date of Supply, the supplier and the Recipient of Goods shall be jointly and severely liable for any Due Tax and relevant penalties in respect of the supply.
7. The Executive Regulation of this Decree-Law shall specify:
a. Conditions and instances where the mechanism in Clause (1) of this Article applies.
b. Additional obligations related to record keeping for Tax calculated according to the mechanism in Clause (1) of this Article.
To know more about the VAT you can visit the official website of Ministry of Finance – UAE www.mof.gov.ae
You can download other accounting templates like UAE VAT Invoice Template, UAE Invoice Template in Arabic, and Cash Book with VAT from here.
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So Companies in designated zone(Outside of state-As per Article 51 of Exec. Regultion no 52) , will not be issuing Tax invoice/Collect Tax for FTA from buyer in UAE, as this transaction will be treated as reverseCharge mechanism(Article 48 of Ref 1)?
The applicability of VAT depends on nature of the transactions.
If sold high seas and customer releases goods from customs then no need of tax invoice as it is outside UAE. But if you release the goods from customs and then provide to the customer then, in that case, you will first pay vat to govt and also claim input of the same. You will issue a tax invoice in this scenario.
Kindly,
Can you clear the Reverse Charge Mechanism with an example and accounting journal entries?
Thanks.
The registered dealer has to account VAT on import purchase and can claim input later. This reversal of tax liability from the seller to buyer is called Reverse Charge Mechanism.
Suggested Accounting Entries:
Debit: Direct cost of the original purchase amount
Debit: A special account for the reverse charge in the tax ledger under the Input tax.
Credit: Supplier for Amount of Import Purchase
Credit: An additional special account under input VAT
These accounting entries are in respect to my knowledge and understanding. You can consult local tax consultants for further clarifications.
Can you provide an example for above journal entry?
Debit: Direct cost of the original amount let’s say 10000 AED
Debit: a special account for the reverse charge in the tax ledger under the Input tax. 500 AED
Credit: Supplier for 10000 AED
Credit: an additional special account under input VAT for 500 AED
Debit: a special account for the reverse charge in the tax ledger under the Input tax
for INPUT TAX RCM in which account but in chart of account
as liability or as expenses
Tax paid under Reverse charge is a liability. Input tax RCM to be claimed on RCM will be adjusted against your Output tax. This is what I could understand. If further query you can contact any local tax consultant.
Nice explanation. Will the supplier from free trade zone supplying to inland customer be treated same as foreign supplier?
yes.
dear sir ,
good day !
my company in jabel ali imported goods now reverse charge will not apply and vat will be 0 % , while filling vat return there are 2 options std rated exp and supplies subject to reverse charge , but there is no option for zero rated purchase kindly help me in this regard
Looking into your matter will soon get back to you on this.
Good morning,
paano po mag apply ng e-dirham cards at paano ito gamiting para sa pagbabayad ng vat
thanks po
Mag-click sa link upang malaman ang pamamaraan para sa e-dirham card
https://www.mof.gov.ae/en/mservices/Pages/EdirhamProcedures.aspx
for expenses paid locally as gifts or charities aed 1000 how i have show tax?
journal entry for that?
Do we need to pay tax for the imported items of the same tax period even if did not sell the imported items?
yes. VAT through RCM is to be paid on Imported Goods at the time of import.
if the other country has no vat and customs charge vat to uae supplier what will be journal entries with example
Couldn’t understand your query dear. Please elaborate your query to make a valid question. Thanks
Hi Sir,
Kindly explain if we will gonna charge 5% VAT to the customer within the state but the goods are imported from Germany to customer which is our main branch. In this case we are just the one who issued invoice to them but the goods are from Germany then deliver directly to the supplier? Is it applicable to reverse charge mechanism to our customer?
*deliver directly to the customer i mean
There can be 2 scenarios in this:
1. The client ordered and he is going to pay the RCM.
2. The client ordered but you will pay RCM and issue a local invoice with to him.
In the first case, the client will directly pay to govt. Whereas in the second case, you will pay against RCM and then collect VAT from the client.
Sir,
1) my company is is designated zone,
2) it have import from oman, and export to african countries.
3) it have local sales
4) it have local taxable purchases
so my doubt is
1. since 95% of my sale is export from designated zone to outside uae (is it out of scope/zero rated??,
2. if it out of scope can i claim input tax refund??
3. if im selling to unregistered customers in mainland (im releasing goods from customs to mainland using my import code and TRN) should i pay VAT as reverse charge?? can i issue and take 5% vat from my customer ??
thanking you in advance
Dear Salman. Let me first explain the concept of Input to you. If you have paid any VAT on your purchase then you are eligible for the claim.
In your case;
1. When your sales and purchase are outside UAE and other places no need to account for VAT. Additionally, you cannot claim input as the transactions are out of scope. But selling goods from the mainland to other countries (export) will be zero-rated.
2. But if you have local taxable purchases with VAT and sales with VAT then you are eligible to claim.
3. Yes, if you have already paid VAT at the import then you can claim VAT from your customers by issuing them a tax invoice. This transaction for you and your customers will be a mainland transaction.
Dear Sir
My Company in Designated Zone ,please answer my following Queries at earliest.
1) we purchase from mainland and sell in Designated Zone and export the goods
q) can we need to show designated zone sale and export sales in vat return ?
b) If we need to show in vat return than its come under 0 rated ??
c) if its out of scope than i am able to claim vat input on my purchase ??
2) we import the goods from USA than where purchase need to show in vat return
Dear Manish,
1. a) You purchase from the mainland by paying VAT then it is your input.
b) Sale from the designated zone is out of scope.
c) Please read the below article for better understanding of VAT Return and which details to furnish wherein the vat return.
https://exceldatapro.com/uae-vat-return-format/
Dear sir
my company (Mainland) purchased goods from freezone they give us VAT invoice. we paid this VAT amount also. This transaction we need to make RCM method or normal one. if this RCM method my doubt is we no need to pay VAT amount yes?. we need to make entries only? please help me about this transaction what i will need to do?
When you purchase from Freezone, VAT is to be paid by the buyer under RCM. As you said your client has issued you a normal tax invoice and collected VAT from you, this transaction for you will be a normal purchase transaction. You will be eligible to claim normal input of the same in your VAT return.
THere is a concern here which you need to clear with your supplier. If the goods are cleared by your supplier from customs by his own import code and then given to you, then the tax invoice is correct. But if the customs clearance is done by your import code then the VAT is payable by you. You can be liable for non-compliance. If there is any discrepancy either the supplier can issue a new invoice or you can call and ask FTA customer care number for clarification.
If we arrange tour/convention/sales incentive for sales people through air or sea transport and hotel stay, events etc. outside UAE for their sales performance. In this case, the invoices from travel agents for air tickets, invoices from hotel and restaurants from other countries (UK, Europe, USA etc.) are subjected to RCM or exempted. Please clarify.
Employee Entertainment is not eligible for Input claim. Even if the above said expenses are paid in UAE or abroad.
May I know, how would we account the expenses incurred outside UAE? As for the company I’m with now, they’re recognizing an RCM for ALL expenses and purchases incurred outside UAE regardless of whether the place of supply is outside UAE.
According to the rule, only those transaction VAT is applicable that are done in UAE. If the services are imported then, in this case, this could be applicable. Please consult a tax expert in this regards.
For a registrant who makes supply of refined oil to a registered person for the purpose of export of oil after packing; whether reverse charge is applicable. Reverse charge applies if goods supplied to another registered person for the purpose of resale or further processing to produce nay form of energy. Is the same rule applicable if goods sold to a registered person who intends to export the goods?
It will be applicable only if you are exporting the goods. But if your recipient is exporting it will not be applicable to you. Your transaction will be regular.
Company A (VAT registered in JAFZA customs bonded area) sold sugar to Company B (VAT registered in DMCC Freezone)
Then, Company B sold this sugar to Company C (VAT registered in mainland).
The sugar will be delivered directly from Company A’s custom bonded area to Company C’s location in the mainland.
Company C, will do the customs clearance.
1. Should Company A charge Company B 5% VAT?
2. Should Company B charge Company C 5% VAT?
3. While clearing the goods thru customs, will the reverse charge mechanism still applies even if Company C paid 5% VAT to Company B?
Company A deals will Company B. Company B Sells to Company C. Both transactions are different.
The ruling is simple. If the transaction takes place outside the mainland then no vat is applicable. But if the company C is importing goods they will pay VAT on imports.
HI
My company is a real estate company, we make payments to google adv, rezora, domains purchased, airline tickets booked etc to companies outside of UAE via Credit card and also pay against services outside UAE like in UK via TT,
1) Do these services received fall under Reverse Charge Mechanism?
2)Hot to account for these services received in VAT Return?
According to my understanding, these services are the import of services, this reverse charge is applicable.
Hi, I just want to ask.
Our VAT Certificate is just approved today(04 Mar 19), but it states that 01 Dec 2018 to 28 Feb 2019 are taxable period. But, we issued invoices for that quarter without VAT yet, considering that our VAT TRN was still under process. What should we do with these invoices? shall we charge VAT on those old invoices? the problem is those are already paid and it will be very hard to be in touch again with our customers to have them pay VAT.
Thanks for your response.
According to the best of my knowledge. You don’t need to include those bills as the approval date is 04 March. But to be on safer please raise the query to the VAT department.
Hello!
Our company (in mainland UAE) imports various goods from overseas, and I can see the imports on the VAT returns, prepopulated by the system. Until now, I claimed the entire input VAT (as we obtained the Bills of Entry – Customs Declarations for those imports).
However, there will always be a timing issue and not all purchases prepopulated on the VAT return will be recorded in our systems, in time for the VAT return. Does this mean that I cannot claim the entire input VAT corresponding to those imports?
I am also unclear on the Reverse Charge Mechanism reconciliation needed, in case of a VAT audit. Do you have any suggestions on this?
Thank you!
Alex
Dear Alex,
As per the basic understanding, once the goods are imported you are liable to pay vat on them. Whatever is imported and prepopulated on the VAT system. It means the transaction has already done. The later stage you can claim the input in current or preceding VAT returns.