How to Calculate VAT in UAE (2025): Inclusive, Exclusive, RCM + 7 Scenarios

Calculating VAT in the UAE involves applying the standard 5% rate to the taxable value of goods or services. Confirm the transaction’s VAT applicability under UAE law. Multiply the taxable amount by 5% to determine the VAT, then add it to the original value to get the total payable. For VAT-inclusive prices, calculate the VAT using: (VAT-inclusive price × 5) ÷ 105, then subtract this from the total to obtain the net price. 

Registered businesses must charge VAT on taxable supplies, issue VAT-compliant invoices, and maintain detailed records. VAT collected must be reported and remitted to the Federal Tax Authority through regular VAT returns. 

What is VAT and Why Does it Matter in the UAE?

Value Added Tax (VAT) is a consumption tax applied to most goods and services sold or imported into the UAE, currently at a standard rate of 5%. Since its introduction on January 1, 2018, VAT has become a key part of every UAE business’s daily transactions and financial management.

Every VAT-registered business is required to:

• Collect VAT on sales (output VAT)
• Pay VAT on purchases (input VAT)
• File regular VAT returns and pay any net VAT due to the Federal Tax Authority (FTA)

How the UAE VAT System Works?

The UAE VAT framework is designed to be simple but thorough, with:

• A standard VAT rate of 5% on most goods and services
• Zero-rated supplies (0% VAT) such as exports and some health and education services
• Exempt supplies (no VAT charged and no input VAT recovery) such as local passenger transport and certain financial services
• Registration is mandatory for businesses with taxable turnover above AED 375,000 per year. Voluntary registration is available at AED 187,500.

VAT Calculation Formula: Inclusive and Exclusive

Below is a comprehensive guide to various VAT calculation scenarios, from basic inclusive and exclusive methods.

Calculating VAT When It Is NOT Included in the Price (Exclusive)

This is the most common method for UAE businesses. This involves calculating VAT on a price of a good and service, adding it up and finding the total amount that you need to receive from a customer or need to pay.

Formula:

VAT Amount = Net Price × 5%
Gross Price (Total) = Net Price + VAT Amount

Example:

• Net price: AED 1,000
• VAT: AED 1,000 × 5% = AED 50
• Gross price: AED 1,050

Calculating VAT When It is Included in the Price (Inclusive)

If the price you’ve been given already includes VAT, you’ll need to extract the VAT portion. This is particularly useful when you have the final amount that you paid or need to pay

Formula:

VAT Amount = Gross Price × (5 ÷ 105)
Net Price = Gross Price – VAT Amount

Example:

• Gross price: AED 1,050
• VAT: AED 1,050 × (5 ÷ 105) = AED 50
• Net price: AED 1,000

VAT Calculation in Special Scenarios

Bulk VAT Calculation in UAE

Businesses handling multiple transactions require bulk VAT calculation. The best option is to use a spreadsheet to record net amounts, calculate 5% VAT for each, and determine gross totals. 

Conversely, you can enter the final amount and use the formula of VAT Inclusive amount to calculate the VAT and the amount exclusive of VAT.

Please find the attached Bulk VAT Calculator which you can download and use as per the instructions given below.

Steps to use Bulk VAT Calculator

1. Download and open the Bulk VAT Calculator Excel file.
2. Enter transaction amounts in the provided rows.
3. In the next column, specify whether the amount is exclusive or inclusive of VAT.
4. VAT will be calculated automatically for each entry.
5. In the following columns, you will find the amount exclusive of VAT and the amount inclusive of VAT

Example: 

VAT Calculation in Reverse Charge Mechanism (RCM)

Reverse Charge Mechanism applies to imported goods and certain B2B services. The buyer calculates and reports VAT at 5%, recording it as both output and input VAT.

Step-by-Step Guide:

1. Identify transactions subject to RCM.
2. Record the supply value.
3. Calculate VAT: VAT = Value × 5%.
4. Record as both output and input VAT.
5. Report both in the VAT return.

Example (Scenario: Importing Equipment):

 A UAE company imports machinery worth AED 20,000 from an overseas supplier.

• Import Value: AED 20,000
• VAT: 20,000 × 5% = AED 1,000
• The company records AED 1,000 as both output VAT and input VAT in its VAT return.

VAT Payment Calculation (VAT Payable)

VAT Payment Calculation determines the amount a business owes to the tax authority by subtracting input VAT (paid on purchases) from output VAT (collected on sales).

Formula:

VAT Payable = Output VAT (on sales) – Input VAT (on purchases)

If Input VAT > Output VAT, you can claim a refund.

VAT Input Tax Credit Calculation

VAT Input Tax Credit Calculation is required when a business wants to claim back the VAT paid on eligible business expenses used to make taxable supplies.

• Eligible: Business expenses used for making taxable supplies.
• Ineligible: Personal expenses, most entertainment, certain vehicles.

Example:

• Input VAT on office rent: AED 1,000
• Input VAT on business purchases: AED 2,000
• Input VAT on personal expenses: AED 500 (not recoverable)

Total recoverable: AED 3,000 – 500 = AED 2,500

VAT Refund Calculation

Businesses can claim a VAT refund when input VAT (paid on purchases) exceeds output VAT (collected on sales) in a tax period—often seen in exporters or high-expense phases.
Steps to Calculate VAT Refund

• Calculate total Input VAT and Output VAT for the period.
• VAT Refund = Input VAT – Output VAT
• Apply for a refund via the FTA portal if the result is positive.

Example:

• Input VAT (on business expenses): AED 5,000 
• Output VAT (on sales): AED 4,000
• Refund claimable: AED 1,000 (5,000 – 4,000)

VAT Calculation on Discounted Items

VAT must be calculated on the amount after any discount, not the original price. This applies in sales promotions and negotiated discounts.

Steps to Calculate VAT on Discount

• Net Price = Original Price – Discount
• VAT Amount = Net Price × 5%
• Show discount and VAT on the invoice.

Example:

• Original price: AED 1,000
• Discount: AED 100
• Net price: AED 900
• VAT: AED 45 (900 × 5%)
• Total customer pays: AED 945

VAT Calculation on Mixed Supplies (Taxable + Exempt)

When selling both taxable and exempt goods/services, input VAT is only recoverable on the taxable portion. This is typical for businesses offering both products and financial services.

Steps to calculate VAT on Mixed Supplies

• Calculate total input VAT for all expenses.
• Determine the proportion of taxable to total supplies.
• Recoverable VAT = Total Input VAT × (Taxable Supplies ÷ Total Supplies)\

Example:

• Total Input VAT: AED 1,000
• 70% supplies are taxable, 30% exempt
• Recoverable VAT: AED 700 (1,000 × 70%)

VAT on Imports (Customs-Linked)

For imported goods, VAT is based on the CIF value plus any customs duties. Payable at import clearance or reported in the VAT return if deferred.

Steps to Calculate VAT on Imports

• Determine CIF value (cost, insurance, freight).
• Add customs duties to CIF value.
• VAT Amount = (CIF + Customs Duties) × 5%

Example:

• CIF: AED 9,000
• Customs duties: AED 1,000
• Total: AED 10,000
• VAT: AED 500 (10,000 × 5%)

VAT Group Calculation

Related businesses can form a VAT group to file a single return, simplifying VAT processes. Intra-group transactions are not subject to VAT.
Steps

• Register related entities as a VAT group with FTA.
• Combine all group output and input VAT for one return.
• Ignore VAT on transactions within the group.

Example:

• Company A sells to Company B (both in group): No VAT charged.
• Group’s total external sales: AED 50,000
• Group’s total external purchases: AED 30,000
• VAT return is filed on combined figures, not individually.

Common Mistakes When Calculating VAT in the UAE

Mistakes in VAT calculation can lead to compliance issues, penalties, and financial losses for UAE businesses. Here are some common mistakes

• Confusing zero-rated with exempt supplies: Zero-rated allows input VAT recovery; exempt does not.
• Claiming input VAT without valid invoices: Always keep FTA-compliant tax invoices.
• Applying the wrong VAT rate: Some goods/services are zero-rated or exempt—check before charging.
• Not updating registration details: Changes in business structure or ownership must be updated with the FTA.
• Incorrectly calculating VAT on discounts or advance payments
• Missing deadlines for VAT returns and payments: Late filing/payment attracts heavy penalties.

Tools for Calculating VAT in UAE

Manually calculating VAT is fine for simple transactions, but for volume business or error-free compliance, consider using a reliable UAE VAT calculator.

Why Use an Online VAT Calculator?

• Instant, error-free calculations for both inclusive and exclusive pricing
• Bulk upload features for invoices
• Reverse charge and refund calculations
• Easy record-keeping for audits

Try our Free VAT Calculator for UAE : The simplest way to ensure accurate VAT calculation.

Conclusion

Businesses must ensure VAT is correctly charged, recorded, and reported on taxable supplies, with all VAT collected and paid regularly to the Federal Tax Authority. Special cases such as bulk calculations, reverse charge mechanism (RCM) for imports, discounts, mixed supplies, and group registrations require additional steps and attention to detail.

To streamline bulk transactions or handle more complex scenarios, using a UAE VAT calculator is recommended for accuracy and compliance. Key requirements include distinguishing between zero-rated and exempt supplies, keeping FTA-compliant invoices, updating registration details, and meeting all filing deadlines. Businesses should also be aware of input tax credit eligibility, VAT refund procedures, and penalties for late payment.