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The reverse charge mechanism is a process under which responsibility of paying tax to Government shifts from seller to buyer. It is only applicable if purchases are made outside the UAE (excluding GCC states). Since a seller does not have business in UAE, the whole process revolves around the receiver of the goods and services. It is the importer or the receiver of the goods and services who pays tax to the Government.
Entries in the books of accounts:
1) Journal for import
Purchase & Expense A/c XXX
VAT - RCM A/c XXX
To Vendor's A/c XXX
To VAT payable - RCM A/c XXX
2) Journal for VAT adjustment:
VAT payable - RCM A/c XXX
To Input VAT - RCM A/c XXX