When UAE introduced Value Added Tax (VAT) on 1st January 2018, it brought many businesses- resident or non-resident, into its ambit of taxation. One area that often creates confusion and generally be missed by the vast majority of the business is Non-resident taxable person.
Who is a Non-Resident Taxable Person?
The Article 1 of the Federal Decree Law No 8 of 2017 defines a Non-Resident Taxable Person as ”Any person who does not own a Place of Establishment or Fixed Establishment in the State and usually does not reside in the State”.
Meaning, a Non-Resident Taxable Person (NRTP) is any non-resident who makes taxable supplies in the UAE and does not have another person (like a local agent or importer) obligated to account for VAT on those supplies.
Which provision of the law covers NRTP?
- The Article 13 of the Federal Decree Law No 8 of 2017 which talks about “Mandatory Tax Registration” says, “Every Person, who does not have a Place of Residence in the State or an Implementing State and is not already registered for Tax, shall register for Tax if he makes supplies of Goods or Services, and where no other Person is obligated to pay the Due Tax on these supplies in the State.”
- Further, Article 18 of the Federal Decree Law No 8 of 2017 which talks about “Tax Registration for a Non-Resident” says, “A Non-resident Person may not take the value of Goods and Services imported into the State to determine whether he is entitled to apply for Tax Registration if the calculation of Tax for such Goods or Services is the responsibility of the Importer pursuant to Clause (1) of Article (48) of this Decree-Law.”
Analysis of the NRTP Provisions under UAE VAT Law
By virtue of Article 13 of Federal Decree-Law No. 8 of 2017, we can deduce the following points-
- They have no place of residence in the UAE- meaning they do not have a fixed establishment, principal place of business, or habitual residence in the UAE.
- They make taxable supplies in the UAE- such as selling goods located in the UAE or providing services to UAE customers.
- The recipient is not obliged to account for VAT under the Reverse Charge Mechanism (RCM) – if the UAE customer is VAT-registered and must self-account under RCM, the non-resident does not need to register. But if the customer is not VAT-registered, the non-resident must register and collect VAT.
- If a non-resident makes taxable supplies in the UAE, they must register for VAT immediately, regardless of the registration threshold (which is AED 375,000 for residents). Unlike resident businesses, NRTPs have no minimum turnover threshold — any taxable supply triggers the obligation.
How Does the Reverse Charge Mechanism Work?
The reverse charge mechanism (RCM) shifts the responsibility to account for VAT from the non-resident supplier to the UAE recipient. This ensures that VAT is collected even when the supplier is outside the UAE.
Practical scenarios where RCM applies:
- Services provided by a non-resident to a UAE VAT-registered business.
- Certain imported goods where the importer accounts for VAT on behalf of the non-resident.
The reverse charge mechanism also interacts with the standard tax rates applicable under UAE VAT, which businesses must apply correctly depending on the transaction type.
Example of classic NRTP:
If a company based in the UK provides consulting services directly to a customer in the UAE who is not registered for VAT, the UK company must register for UAE VAT and charge it on the invoice. In this scenario, the UK company is treated as a Non-Resident Taxable Person (NRTP).
However, if the UAE customer is VAT-registered, the reverse charge mechanism will usually apply — meaning the UAE customer must account for the VAT themselves. In that case, the non-resident supplier does not need to register for VAT in the UAE.
To fully understand how the reverse charge mechanism fits into the UAE VAT framework, it’s essential to first know what VAT is and how it works in the UAE.
When does an NRTP not need to register for UAE VAT?
- If the non-resident makes a supply to a UAE VAT-registered recipient who is required to account for VAT under the Reverse Charge, then the non-resident does not have to register for VAT.
- In a few cases where the place of supply is outside the UAE, the NRTP does not need to register for VAT, as the supply is out of scope.
Common Mistakes Non-Resident businesses Make
- Assuming small or one-off supplies don’t require registration.
- Assuming the UAE customer will always self-account under RCM.
- Failing to appoint a local tax agent to handle compliance.
Key Compliance Considerations for Non-Residents
- Registration: Apply for VAT registration as soon as you know you will be making taxable supplies in the UAE where RCM does not apply.
- Returns: File VAT returns as required (usually quarterly or monthly).
- Appoint a Tax Agent: Non-residents often appoint a UAE-based tax agent to manage compliance.
- Invoices: Issue tax invoices as per UAE VAT Law.
- Penalties: Failing to register or file on time can result in significant fines.
- VAT as a Cost: Failure to identify the application of NRTP provisions may result in VAT becoming a cost to the company. If VAT is not collected and charged on the invoice, the company will have to bear the VAT cost itself for the supplies provided to customers in the UAE.
Non-residents supplying goods or services in the UAE must understand when they need to register for VAT, how the reverse charge mechanism works, and the penalties for non-compliance. It’s good practice to seek advice early and, where needed, engage a UAE tax agent to stay compliant.
For more clarity, you can also check our detailed UAE VAT FAQs that address common questions on registration, compliance, and reverse charge cases.
We, BCL Globiz, can help you navigate the nitty-gritties of UAE tax laws and ensure you are always fully tax compliant. We provide end-to-end services under one roof- including accounting, tax advisory, VAT registration and returns, and Corporate Tax (CT) returns.
Write to us at punith@bclglobiz.com for further enquiries.
