Buyer Guides · 6 MIN
UAE VAT on software and digital services from abroad: how the reverse charge works
How UAE VAT treats software development and SaaS bought from a foreign vendor: the 5% reverse charge, registration thresholds, invoices and e-invoicing.
When a VAT-registered UAE business buys software development or digital services from a vendor outside the UAE, the vendor usually invoices without UAE VAT and the buyer accounts for the 5% VAT itself on its return, under the reverse charge. In most cases it can also reclaim that amount as input tax. Confirm the details with your accountant.
- The UAE standard VAT rate is 5%, and the Federal Tax Authority publishes the rules and registration thresholds.
- The mandatory registration threshold is AED 375,000 and the voluntary threshold is AED 187,500, and both count imports as well as supplies.
- A foreign vendor's invoice normally carries no UAE VAT, so the buyer self-assesses under the reverse charge.
- Recovery of the self-assessed VAT depends on whether your own supplies are taxable, so check with your accountant.
- UAE e-invoicing is being phased in from 2026 to 2027, which affects how supplier invoices are recorded.
- Nactore is an AI-native technology and growth company in Mumbai that invoices overseas clients as an exporter of services and keeps its paperwork simple for your finance team.
What is the reverse charge on imported services?
It is a mechanism that moves the duty to account for VAT from the foreign supplier to the UAE recipient. The foreign vendor does not register in the UAE and does not charge UAE VAT. Instead the UAE business treats the purchase as if it had supplied the service to itself. It reports output VAT on the purchase and, where entitled, claims the same amount as input VAT in the same return.
The Federal Tax Authority hosts the rules on its VAT pages. The reverse charge itself is Article 48 of the VAT Decree-Law No. 8 of 2017, which treats a taxable person importing services for its business as making a taxable supply to itself. The same law sets the 5% standard rate. Ask your accountant which other articles of the law and its executive regulation apply to your purchase.
Does the reverse charge apply to software development and SaaS?
Generally yes, when the services are treated as supplied in the UAE and the recipient is a business that is registered or required to register. Software development, design, hosting, subscriptions and AI services bought from abroad usually fall into this group. The place-of-supply rules decide the outcome, so the answer for an unusual service should come from your tax advisor.
When must a UAE buyer be VAT-registered?
| Test | Threshold | Source |
|---|---|---|
| Mandatory registration | Taxable supplies and imports above AED 375,000 over the previous 12 months | Federal Tax Authority |
| Voluntary registration | Supplies, imports or taxable expenses above AED 187,500 over the previous 12 months | Federal Tax Authority |
The detail that surprises small buyers is that imports count. A start-up with modest sales that spends heavily on foreign software development can cross a threshold through its purchases. The registration page states both tests.
How does the accounting entry look?
Take a service invoice of AED 100,000 from a foreign vendor with no UAE VAT. The reverse-charge entry is below, and the numbers are only an example.
- Record the expense. AED 100,000 as the cost of the service.
- Calculate VAT. 5% of AED 100,000 is AED 5,000.
- Report output VAT. AED 5,000 goes in the output tax boxes of the return.
- Claim input VAT. If you are entitled, AED 5,000 goes in the input tax boxes.
- Net effect. Often zero cash outlay, but it still has to be reported on time.
If your business makes mostly exempt supplies, recovery may be restricted, and then the VAT becomes a real cost. That is the question to settle first.
What should the vendor's invoice show?
Ask for an invoice that supports your records.
- Vendor identity. Legal name, address and tax number in its own country.
- Your identity. Your legal name, address and UAE tax registration number.
- Service description. Specific enough to classify, not just "services".
- Amount and currency. The total and the currency, so you can convert to dirhams for the return.
- No UAE VAT line. If a foreign vendor charges VAT it is not registered to collect, ask why.
What happens on the vendor's side in India?
Export of services from India is generally zero-rated for GST when conditions are met, such as payment in convertible foreign exchange and a recipient outside India, and exporters commonly supply under a Letter of Undertaking. Section 16 of the Integrated Goods and Services Tax Act treats exports of services as zero-rated supplies and allows supply under a Letter of Undertaking. Our guide on India GST and the LUT for export of services covers that side, and paying an Indian software vendor from abroad covers the payment mechanics.
On the UAE side, ask your tax advisor whether any withholding applies to payments abroad. Article 45 of the UAE Corporate Tax Decree-Law No. 47 of 2022 sets withholding tax at 0% on State Sourced Income of a non-resident that is not attributable to a permanent establishment in the UAE, unless the Cabinet sets another rate, so confirm how it applies to your case.
How does e-invoicing change the picture?
Under the Ministry of Finance's Ministerial Decision No. 244 of 2025, a pilot starts on 1 July 2026, businesses with annual revenue of AED 50 million or more must implement e-invoicing by 1 January 2027, and businesses below that by 1 July 2027. A 2026 amendment moved the larger group's deadline for appointing an accredited service provider to 30 October 2026 and kept the 1 January 2027 start, as the Ministry of Finance announced. Confirm the current dates with your accountant, because they have moved before. For a foreign vendor's invoice the practical question is how your finance team will capture it, since reverse-charge purchases are still reported on your return.
Add a line to your vendor contract stating that fees exclude UAE VAT and that the buyer will self-account under the reverse charge. It prevents a dispute at invoice time.
Frequently asked questions
Does a foreign vendor need to register for UAE VAT?
Usually not for business-to-business services where the UAE recipient accounts under the reverse charge. A vendor that sells to UAE consumers has different rules, so each case needs checking.
Can we reclaim the reverse-charge VAT?
Often yes, if you make taxable supplies and the purchase relates to them. If your supplies are exempt or the cost is not business-related, recovery may be limited.
Do imports count toward the registration threshold?
Yes. The Federal Tax Authority's thresholds refer to supplies and imports, so spending abroad can matter.
Is this tax advice?
No. Confirm all VAT treatment with a UAE-licensed tax advisor or accountant.
Settle the tax line before you sign
Decide who accounts for VAT, ask for a clean invoice, and keep the reverse-charge entry in your monthly routine. Nactore builds, ships, ranks and grows as one partner, with simple paperwork for your finance team.
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Want to apply this to your business?
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