When is reverse charge applicable?
The reverse charge mechanism will apply in the following situations:
- When a VAT-registered business imports a taxable service. Since imported services do not go through the Customs Department, VAT cannot be collected at the airport or border. So the buyer accounts for input VAT on the import transaction under the reverse charge mechanism instead.
- When a taxable person receives services from a non-resident. The taxable person must calculate the amount of VAT due by the reverse charge mechanism.
- When the trading occurs within the GCC. When an intra-GCC transaction takes place, the supplier is not required to register in the destination country or charge VAT. In this case, the buyer needs to account for the VAT under the reverse charge mechanism.