What exactly is the reverse charge?
The conventional method of collecting VAT requires the seller of supplies or services to collect VAT from buyers and remit it to the FTA. The responsibility for reporting VAT is transferred from the seller to the recipient under reverse charge. If a customer purchases goods from a supplier using the reverse charge mechanism, the customer is responsible for paying VAT on the goods purchased.
Example
Assume you are a VAT-registered UAE resident who purchases a washing machine from a company located outside the country.
Conventional method
The seller is required to register for VAT in the UAE under the conventional method. The seller will collect the 5% VAT from the buyer and pay it to the FTA.
Reverse charge
Using the reverse charge method, the non-resident seller is not required to register for VAT. The buyer must pay VAT on the imported product or service.