Reverse Charge Mechanism

Suspension of Reverse Charge Mechanism facility by FTA

Federal tax authority has recently published an update to the taxpayers regarding the suspension of Reverse Charge Mechanism, a facility which previously helped taxpayers to automatically claim back the tax credit on the Imports without the actually payment of the same.

According the FTA, the suspension may encourage the taxpayers to pay off any outstanding penalties owing to the FTA. If the outstanding penalties are not cleared before 31st August 2020, the FTA will suspend the ‘Automatic’ tax settlement system on import under the Reverse Charge Mechanism. By this, the taxpayer is required to pay the tax liability incurred on the imports beforehand in order to clear the goods from the customs.

The main disadvantage of this update is unfavorable cash flow position as the VAT incurred on imports of goods has to be paid first. Please note that at the moment,the FTA doesn’t restrict the input VAT recovery on the import VAT paid.

In order to avoid this suspension the FTA requires the taxpayer to clear all the dues with the authority and you must settle this before end of August 2020 and email the proof of payment to Reactivation instructions will be followed up with taxpayer through the same email.

If failed to settle the dues before the mentioned time frame, FTA can still suspend the facility of reverse charge mechanism on import of goods and collect the amounts due, while charging relevant fees, expenses and legal risks.

Professional tax advisors in UAE are there to help your businesses in settling the outstanding penalties or settling the VAT payment before deadlines. If your business is looking for tax consultant in Dubai, then you can always count on us. We are there to assist you regarding any VAT or tax related issues and filings.

Apart from taxation, we also provide accounting services in UAE. Contact us today on 9715 010 42665 or at for any queries or services.

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