Reverse Charge Mechanism in UAE VAT (2026): Rules, Examples & Form 201 Reporting

What Changed for the Reverse Charge in 2026

Three changes took effect this year, and they affect businesses that report reverse charge transactions:

Self-invoicing removed. Federal Decree-Law No. 16 of 2025, effective from 1 January 2026, removed the requirement to issue a self-invoice for reverse charge transactions. Businesses should now retain the supplier’s invoice and import documentation instead.

Scrap metal added to domestic RCM. Cabinet Decision No. 153 of 2025 applies the reverse charge mechanism to local supplies of scrap metal between VAT-registered persons from 14 January 2026.

FTA can deny input VAT linked to evasion. If a supply is connected to tax evasion and you knew, or should have known, about that risk, the FTA can reject your input VAT recovery. Supplier verification is now a practical part of RCM compliance.

How the reverse charge works

In a normal VAT transaction, the supplier charges 5% VAT, collects it from you, and pays it to the FTA. That works when the supplier is registered for UAE VAT.

Under the reverse charge, the supplier invoices you without UAE VAT. You then self-account for the tax in your own VAT return. This means you report 5% of the supply value as output VAT and, if the purchase is used for taxable business activities, claim the same amount as input VAT in the same return.

For a fully taxable business, the net VAT effect is usually zero. No cash moves between buyer and supplier for the VAT amount. But the reporting is still required. If a reverse charge transaction is not declared, the FTA can treat it as a compliance error even where no net tax is due. It is also one of the errors auditors commonly pick up in VAT return reviews.

When RCM applies: the complete 2026 list

Two points clear up most doubtful cases. If a foreign supplier is voluntarily registered for UAE VAT and charges VAT on the invoice, the reverse charge does not apply. You recover the input tax in the normal way. If the invoice shows no UAE VAT and the place of supply is the UAE, the reverse charge will usually apply.

How to report RCM on Form 201

Form 201 is the VAT return you submit through the FTA’s EmaraTax portal each tax period. Two of its boxes handle every reverse charge transaction.

The two boxes

Box 3: Supplies subject to the reverse charge. Enter the net value of the reverse-charged purchase. The 5% output VAT is calculated on this value.

Box 10: Recoverable input tax on reverse charge. Enter the same VAT amount, but only where the purchase is used for taxable business activities. If your business also makes exempt supplies, apply your input tax recovery ratio first.

For imported goods, customs declarations may pre-populate Boxes 6 and 7. Reconcile these figures against your own records each tax period. Pre-populated customs figures are useful, but they are not always correct.

Worked example: imported SaaS for a fully taxable business

Worked example: partially exempt business

A firm pays AED 200,000 to an overseas consultancy. The firm’s activities are 70% taxable and 30% exempt.

Partial exemption is where reverse charge stops being cash-neutral. If your business makes exempt supplies, the non-recoverable portion becomes a real expense and should be budgeted for.

Documentation after the 2026 change

With self-invoicing removed, your audit trail now depends on the original transaction documents. Keep the following records for at least five years:

• The supplier’s original invoice showing no UAE VAT
• The contract or purchase order
• Proof of payment
• Customs declaration, for goods
• Currency conversion at the UAE Central Bank rate on the date of supply
• The written buyer declaration for domestic RCM supplies, including electronics, precious metals, and hydrocarbons

For 2026, add one more check to the file. Because the FTA can deny input VAT where you knew, or should have known, that a supply was linked to evasion, verify the supplier’s TRN before the transaction and keep the verification record with the same VAT file.

5 RCM errors the FTA finds in audits

Our VAT consultants see these five errors repeatedly when reviewing client VAT returns and representing businesses in FTA audits. Each one is avoidable with a single check before filing.

1. Not applying the reverse charge at all

A foreign invoice with no VAT does not mean there is nothing to report. If the place of supply is the UAE, you must self-account for VAT.

2. Applying RCM when the supplier already charged UAE VAT

This double-counts the tax. Check the invoice for a TRN and a UAE VAT line before treating the transaction as reverse charge.

3. Claiming 100% in Box 10 while partially exempt

This leads to over-recovery of input tax. Apply your recovery ratio before entering the input VAT figure.

4. Entering RCM values in the wrong boxes

Reporting reverse charge values in the standard supply fields can distort your VAT return. Output tax goes in Box 3, recovery goes in Box 10, and Boxes 6 and 7 should be reconciled for imported goods.

5. Missing buyer declarations

For electronics, precious metals, and hydrocarbons, the written buyer declaration is a condition of the domestic reverse charge treatment. Without it, the treatment can be challenged in an audit. Obtain it before the supply and file it with your VAT return workings.

Frequently asked questions

Do I still need to issue a self-invoice for reverse charge in 2026?

No. Federal Decree-Law No. 16 of 2025 removed the self-invoicing requirement for reverse charge transactions from 1 January 2026. Instead, you must retain the supplier’s original invoice, the contract or purchase order, proof of payment, and any import documentation. These records are now your audit evidence and must be kept for at least five years.

Does reverse charge apply if the foreign supplier is registered for UAE VAT?

No. If a foreign supplier is voluntarily registered for UAE VAT and charges 5% VAT on its invoice, the reverse charge does not apply. You recover the input tax in the normal way through your VAT return. The reverse charge applies where the supplier is not UAE VAT-registered and no UAE VAT appears on the invoice.

Can I recover all the VAT I self-account under the reverse charge?

Only if the purchase is used entirely for taxable business activities. In that case, the input VAT in Box 10 fully offsets the output VAT in Box 3, and the net effect is zero. If your business makes exempt supplies, you can recover only the taxable proportion. The remaining amount becomes a real VAT cost to the business.

What is the reverse charge treatment for scrap metal in 2026?

Cabinet Decision No. 153 of 2025 applies the reverse charge mechanism to local supplies of scrap metal between VAT-registered persons in the UAE, effective from 14 January 2026. The supplier issues an invoice without VAT, and the VAT-registered buyer self-accounts for the 5% VAT in its own return. The output VAT is reported in Box 3, and recoverable input VAT is reported in Box 10 where eligible.

What happens if I forget to report a reverse charge transaction?

An unreported reverse charge transaction is a compliance violation even if the net tax effect would have been zero. The FTA can impose administrative penalties if the error is found in an audit. If you identify the omission yourself, correcting it early, either in the next return or through a voluntary disclosure where required, is usually cheaper than waiting for the FTA to find it.

Is there a minimum invoice value for the reverse charge to apply?

No. The reverse charge mechanism has no minimum invoice value. It applies to any qualifying transaction, whether it is a small monthly software subscription or a large consultancy contract. Every reverse-charged purchase in the period should be included in Box 3 of Form 201, with recoverable input VAT reported in Box 10 where eligible.

Importing services or trading RCM goods?

Send us your last VAT return and supplier invoices. We’ll check your Box 3 and Box 10 figures before the FTA does.

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