What is reverse charge?
The conventional method of collecting VAT dictates that the seller of supplies or services should collect VAT from the buyers and pay it to the FTA. Reverse charge shifts the responsibility for reporting VAT from the seller to the recipient. If a customer buys goods from a supplier under the reverse charge mechanism, the customer will be responsible for paying VAT for the procured goods.
Example: You are a VAT-registered resident of the UAE and you buy a refrigerator from a company outside the country.
Conventional method: The conventional method obligates the seller to register for VAT in the UAE. The seller will collect the 5% VAT for the refrigerator from the buyer and pay it to the FTA.
Reverse charge: The reverse charge method eliminates the need for the non-resident seller to register for VAT. The buyer has to pay the VAT for the product or service imported.