VAT in UAE : 5% Rate, Registration Threshold, Exemptions & Filing Rules

Value Added Tax or VAT in the UAE was introduced on January 1, 2018, with a standard rate of 5%. In UAE, VAT applies to almost all goods and services supplied within the country; however, supplies from some key sectors like healthcare, education, and exports are either exempted or taxed at 0% (nil-rated).
Businesses whose taxable turnover exceeds AED 375,000/year are required to register for VAT in UAE, issue VAT-compliant invoices, file periodic VAT returns online, make required VAT payments. VAT paid on business expenses (input tax) can be claimed by deducting it from actual VAT liability.

UAE VAT Timeline 

• 2017: The UAE issues Federal Law on Value Added Tax (VAT).
• January 2018: VAT is implemented at 5% on all  goods and services.
• 2023: UAE amends 24 articles of the VAT Law, effective January 1, 2023.F
• November 2024: Cabinet Decision overhauls the VAT Executive Regulations.
• October 2024: UAE mandates e-invoicing, with phased implementation by 2026.

What is VAT in UAE?

Value Added Tax (VAT) in the United Arab Emirates is a form of indirect tax imposed on the consumption of goods and services at the standard rate of 5%.

VAT is levied incrementally at each stage of production, distribution, and sale, ultimately borne by the end consumer. Businesses collect VAT on behalf of the Federal Tax Authority (FTA). Each business in the supply chain charges VAT on its sales (output VAT) and pays VAT on its purchases (input VAT). The difference is remitted to the government.

How Does VAT Work in UAE?

The VAT system in the UAE operates through a chain of tax credits. At each stage of the supply chain, registered businesses charge VAT on their sales (output tax) and pay VAT on their purchases (input tax). They then remit the difference to the government or claim a refund if input tax exceeds output tax.

Example: When a farmer sells cotton to a factory, the farmer charges VAT and pays it to the government. When the factory uses the cotton to make clothes and sells them to a retailer, the factory charges VAT but can claim a credit for the VAT it paid to the farmer. Similarly, when the retailer sells the clothes to the final customer, the retailer charges VAT but can claim a credit for the VAT paid to the factory. This system ensures that tax is collected at each stage of the supply chain while avoiding double taxation.

VAT Rate in the UAE

UAE VAT rate is 5%. However, there are two more categories: nil-rated supplies (0%) and exempt supplies, which are out of scope under the current VAT Law.

Standard-Rated Supplies (5%)

The standard VAT rate in the UAE is 5%, which applies to most goods and services supplied within the UAE. This includes:

• Retail sales of goods
• Professional services
• Commercial property rentals
• Food and beverages
• Utility services
• Electronic services
• Imported goods

Zero-Rated Supplies (0%)

Zero-rated supplies are technically taxable at 0% VAT. Businesses making zero-rated supplies can still reclaim the input VAT they've paid on their purchases. The following supplies are zero-rated in the UAE:

• Exports of goods and services outside the VAT implementing Gulf Cooperation Council (GCC) member states
• International transportation of passengers and goods
• Supply of crude oil and natural gas
• First supply of residential real estate within three years of construction
• Educational services provided by recognized educational institutions
• Healthcare services provided by qualified medical professionals and institutions
• Investment grade precious metals (99% purity gold)

Exempt Supplies

Exempt supplies do not have VAT charged on them, but unlike zero-rated supplies, businesses cannot reclaim input VAT related to these supplies. The following are exempt from VAT in the UAE:

• Certain financial services that are compensated through implicit margins or spreads (rather than explicit fees)
• Residential buildings (sale or lease), except for those that are zero-rated
• Bare land (without any completed or partially completed buildings)
• Local passenger transport services

How is VAT Calculated in the UAE? (With Example)

VAT in the UAE is calculated at a standard rate of 5% on the value of taxable goods or services sold. When a business makes a sale, it adds 5% VAT to the selling price and collects this from the customer. The business can also claim back any VAT it paid on its own business-related purchases (input VAT). The net VAT payable to the government is the VAT collected from sales (output VAT) minus the VAT paid on purchases (input VAT).

Example:
Suppose a retailer sells a laptop for AED 2,000. The VAT would be:
VAT = AED 2,000 × 5% = AED 100
The customer pays a total of AED 2,100 (AED 2,000 + AED 100 VAT).

If the retailer bought the laptop from a distributor for AED 1,500 plus AED 75 VAT (input VAT), the net VAT payable to the government would be:
Output VAT (AED 100) – Input VAT (AED 75) = AED 25
So, the retailer pays AED 25 to the government.

What are VAT Compliance and Obligations in UAE

Every business in UAE must comply with VAT laws if the fall under the required criteria. Here are some of the major compliance obligations that the businesses need to follow in the UAE

VAT Registration Requirements in UAE

Businesses must register for VAT in the UAE if their taxable supplies and imports exceed AED 375,000 per annum. Once this threshold is crossed, the business must apply for VAT registration within 30 days from the date of crossing the threshold. Failure to register on time can result in an administrative penalty of AED 10,000. You can register for VAT online through the Federal Tax Authority (FTA) e-Services portal.

Voluntary Registration: Businesses with taxable supplies and imports between AED 187,500 and AED 375,000 can voluntarily register for VAT. Voluntary registration can be beneficial for businesses as it allows them to reclaim input VAT and enhances their credibility in the market.

Invoice Generation and Payment Collection

• Issue a VAT-compliant invoice for every taxable supply.
• Use a full tax invoice for B2B transactions or supplies over AED 10,000.
• Use a simplified tax invoice for B2C transactions or supplies under AED 10,000.
• Ensure each invoice includes: “Tax Invoice” label, supplier and recipient details, TRN, unique invoice number, invoice and supply dates, description of goods/services, quantity, unit price, total amount excluding VAT, VAT rate and amount, gross total, discounts, and reverse charge statement if applicable.
• Issue VAT invoices within 14 days of the supply date.
• Collect 5% VAT from customers on taxable supplies.

VAT Return Filing

VAT registered businesses must file VAT returns regularly through the EMARATAX portal. The filing frequency depends on the annual turnover:

• Monthly Filing: For businesses with annual turnover exceeding AED 150 million
• Quarterly Filing: For businesses with annual turnover less than AED 150 million

VAT returns must be filed within 28 days from the end of the tax period. The VAT return document (VAT 201) tracks various VAT related data, including:

• Standard-rated supplies
• Zero-rated supplies
• Exempt supplies
• Imports subject to reverse charge
• Adjustments to previous returns

VAT Payment (Remittance to the Government)

• VAT collected from customers (output VAT) minus VAT paid on purchases (input VAT) equals the net VAT payable to the FTA.
• Payment must be made through the FTA’s EmaraTax portal, using options such as credit card, local bank transfer (GIBAN), eDebit, or e-Dirham card. 
• Payment deadlines are strict: VAT is due 28 days after the end of each tax period (month or quarter).
• Late payment or non-payment results in financial penalties.

Record-Keeping Obligations

Businesses registered for VAT in the UAE must maintain detailed records of their financial transactions. According to the regulations, the following records must be kept:

• All tax invoices, tax credit notes, and corresponding documents issued and received
• Records of all supplies and imports of goods and service
• Details of goods and services that were used for non-business purposes
• Records of goods and services purchased for which input tax was not claimed
• Records of exported goods and services
• Documentation of any modifications to accounts or tax invoices
• Records of tax accounting frameworks employed

VAT Recovery and Input Tax Credits in UAE

One fundamental feature of VAT is the mechanism of input tax deduction businesses can offset the VAT paid on their purchases (input VAT) against the VAT charged on their sales (output VAT).

• Input VAT Recovery: VAT-registered businesses can reclaim VAT paid on purchases used for taxable business activities. Input VAT on standard and zero-rated supplies is fully recoverable.
• Non-Recoverable Input VAT: VAT on entertainment, non-business vehicles, employee benefits not required by law, and costs related to exempt supplies is not recoverable. Medical insurance for employees is recoverable only if legally required.
• Apportionment: Businesses making both taxable and exempt supplies must allocate input VAT accordingly, based on the proportion of taxable to total turnover.
• Zero-Rated and Export Supplies: Input VAT for zero-rated and export supplies is recoverable if proper export documentation is maintained.
• Imports & Reverse Charge: Registered importers declare and recover VAT on imports through their VAT return. Non-registered importers pay VAT at customs and cannot reclaim it.
• Capital Assets: Input VAT on capital assets may need adjustment over time if use changes between taxable and exempt activities.
• Refunds: If input tax exceeds output tax, businesses can carry the credit forward or apply for a refund. Special refund schemes exist for foreign businesses, tourists, and certain government or charitable entities.

Cross-Border Transactions and VAT

The UAE treats cross-border trade under specific VAT rules to ensure VAT is charged only on domestic consumption:

• Export of Goods: Zero-rated (0% VAT) if shipped outside the GCC, with export documentation required as proof.
• Export of Services: Generally zero-rated if the benefit is outside the UAE and not related to UAE-based goods or real estate. Some services (e.g. related to UAE property/events) are always taxed in the UAE.
• Import of Goods: 5% VAT applies. Registered businesses use reverse charge in VAT returns; non-registered pay at customs and cannot reclaim.
• Import of Services: Reverse charge VAT at 5% applies. Only fully taxable businesses recover all input VAT.
• GCC Movements: Supplies to other GCC countries are treated as exports (zero-rated), taxed on import by the destination state.
• International Transport: Zero-rated for cross-border transport and related services if part of a single international supply.
• Digital Services: Foreign digital service providers may need to register for UAE VAT and charge VAT on B2C sales.

Industry Specific VAT Considerations in UAE

VAT in the UAE applies differently across various industries, with specific rates, exemptions, and compliance requirements tailored to each sector. Key industry considerations include:

• Education: Nursery and pre-school education services are zero-rated (0%), while items like school uniforms, stationery, and electronic equipment are standard-rated at 5%.
• Healthcare: Most medical services and essential medicines are zero-rated, but other medical supplies may attract 5% VAT.
• Oil & Gas: Crude oil and natural gas are zero-rated, while other oil and gas products, including petrol, are subject to 5% VAT.
• Transportation: Domestic passenger transport (including internal flights) is exempt. International transport and related goods/services are zero-rated. Commercial vehicles for transporting over 10 people are also zero-rated.
• Real Estate: Sale and rent of commercial buildings are standard-rated at 5%. The first sale or rent of a residential building after construction is zero-rated, but subsequent sales/rents are exempt. Bare land is exempt, while developed land is standard-rated. Hotels and serviced accommodation are standard-rated at 5%.
• Financial Services: Margin-based financial products (without explicit fees) are exempt. Regulated investment funds and virtual assets (including cryptocurrencies) are now VAT-exempt, reducing compliance costs but limiting input VAT recovery for affected entities.
• Exports and International Trade: Exports of goods and services are generally zero-rated, but stricter documentation is now required to claim zero-rating, including customs declarations and shipping documents.
• Government and Public Sector: Real estate transfers involving government entities are now exempt, reducing VAT liabilities for public infrastructure projects.

E-Invoicing in the UAE

The UAE is moving towards mandatory e-invoicing for VAT-registered businesses, with implementation for B2B and B2G transactions set to begin in July 2026 and phased according to business size. 

This initiative is grounded in Federal Decree-Law No. 16 of 2024, which amended the VAT Law to legally recognize e-invoices for VAT reporting and input tax recovery, effective from November 2024. 

Under e-invoicing, the following compliance requirements would be required

• E-invoices must be generated, transmitted, and stored in structured digital formats (XML/JSON), not as PDFs or paper, and exchanged via Accredited Service Providers (ASPs) using the Peppol “5-corner” model.
• E-invoices are validated by ASPs, transmitted to buyers and the Federal Tax Authority (FTA) in near real-time, with no pre-clearance required, ensuring data authenticity and auditability.
• The e-invoicing system will standardize invoice data fields (using the UAE E-Invoicing Data Dictionary) and require businesses to update ERP systems and processes for compliance.
• Benefits include improved VAT compliance, reduced fraud, streamlined tax return filing, operational efficiency, and alignment with international best practices.
• B2C e-invoicing will be introduced in later phases; all VAT groups must ensure each member connects to an ASP with their TRN

Penalties for VAT Non-Compliance in the UAE

The UAE imposes strict penalties for VAT non-compliance, covering a wide range of violations from late registration to incorrect filings and improper record-keeping. Below is a detailed summary of key penalties, including the amounts and conditions, as of 2025.

Conclusion

Since its introduction in 2018, VAT has become a central pillar of the UAE’s fiscal framework, affecting nearly all goods and services supplied within the country. The VAT system allows registered businesses to reclaim input tax on their expenses ensuring that the final tax burden falls on the end consumer only. 

UAE is making continuous updates to VAT regulations—such as mandatory e-invoicing starting 1^st July 2026—reflect the UAE’s commitment for maximum  VAT compliance. For businesses operating in the UAE its very important to comply VAT obligations, maintain accurate records, and file accurate returns. 

UAE VAT Government Resources