UAE Free Zone — VAT Reverse Charge Mechanism Reference 2026
UAE VAT uses a reverse charge mechanism for imported services. Here is the complete 2026 reference for UAE free zone companies receiving services from outside UAE.
In this guide:
What Is the VAT Reverse Charge Mechanism?
- Definition: Instead of the supplier charging UAE VAT, the recipient (UAE business) self-accounts for the VAT
- When it applies: When a UAE VAT-registered business receives services from a supplier outside UAE
- Purpose: Prevents overseas suppliers having to register for UAE VAT on every UAE sale
How Reverse Charge Works for UAE Free Zone Companies
- Example: UAE FZ company (VAT-registered) receives a USD 10,000 invoice from a UK software company (not UAE VAT registered)
- Step 1: UK supplier invoices without UAE VAT (they are not UAE-registered)
- Step 2: UAE company calculates 5% UAE VAT on import (= AED 1,837 approx; 5% of AED 36,740)
- Step 3: UAE company reports this as both output tax (UAE VAT payable) AND input tax (UAE VAT recoverable) on its VAT return
- Net effect: Zero net VAT cost if the UAE company has full input tax recovery
Who Is Affected?
- Only VAT-registered UAE companies: UAE companies that are VAT-registered must apply reverse charge
- Non-VAT-registered: UAE companies below VAT threshold; no reverse charge obligation
Reverse Charge on Goods (Import VAT)
- Imported goods: UAE import VAT (5%) paid on entry of goods into UAE; collected by Customs
- Designated zones: Goods in UAE designated zones (certain free zones) may be outside UAE VAT scope until moved to mainland