A UAE VAT-registered company receives consulting services from a supplier based outside the UAE who has no place of establishment or fixed establishment in the UAE and is not registered for UAE VAT. The company uses these services for its own taxable business activities in the UAE. Under Article 48 of Federal Decree-Law No. 8 of 2017, how is VAT accounted for on this import of services?
- No VAT applies at all, because Article 48's reverse charge mechanism applies only to imports of goods, never to imported services
- The foreign supplier must register for UAE VAT and charge VAT on its invoice to the UAE company, exactly as a UAE-based supplier would
- The UAE company must pay VAT directly to UAE Customs at the point the services are received, in the same manner as VAT is collected on imported goods at the border
- The UAE company must self-account for VAT under the reverse charge mechanism, treating itself as if it were both the supplier and recipient of the services, calculating output tax on the value of the imported services and recovering corresponding input tax subject to the normal input tax recovery rules
Why D? And why not the others?
Correct answer: D. The UAE company must self-account for VAT under the reverse charge mechanism, treating itself as if it were both the supplier and recipient of the services, calculating output tax on the value of the imported services and recovering corresponding input tax subject to the normal input tax recovery rules
Article 48 of Federal Decree-Law No. 8 of 2017 applies the reverse charge mechanism to both imported Concerned Goods and imported Concerned Services received by a UAE taxable person from a supplier who has no place of establishment or fixed establishment in the UAE; it is not limited to goods. Under this mechanism, the UAE recipient calculates and reports output tax on the value of the imported services as though it had supplied them to itself, while simultaneously being entitled to recover the corresponding input tax under the normal recovery rules, so the net cash cost is typically nil where the services are used for fully taxable business purposes. The option limiting Article 48 to goods only is wrong because the reverse charge provision explicitly extends to Concerned Services received from outside the UAE, exactly as tested here. The option requiring the foreign supplier to register and charge VAT is wrong because a non-established supplier with no UAE presence is not the party who accounts for VAT under this mechanism; the burden shifts to the UAE recipient. The option describing VAT being collected at the point of receipt through UAE Customs is wrong because Customs-point collection is how VAT is typically captured on imports of physical goods, not services, which instead flow through the recipient's own VAT return via self-accounting.
Source: UAE Federal Decree-Law No. 8 of 2017, Article 48 (Import of Concerned Goods and Concerned Services -- reverse charge mechanism)