VAT in UAE: Rates, Registration Process, and Exemptions

To diversify its economy away from reliance on oil revenues, the United Arab Emirates (UAE) introduced Value Added Tax (VAT) on January 1, 2018. VAT implementation in the UAE, guided by Federal Decree-Law No. 8 of 2017, continues to significantly impact all Emirates' businesses, consumers, and economic practices, including Dubai and Abu Dhabi. 

This comprehensive guide breaks down everything you need to know about VAT in UAE 2025 rates, compliance, calculation, registration requirements, return filing, refunds, industry-specific considerations, e-invoicing under VAT law and much more.

Key Takeaways: VAT in UAE

Here is a summary of the entire blog with the key takeaways for Value Added Tax in UAE 

What is VAT, and When Was It Implemented in the 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.

• Implementation Date: January 1, 2018
• Standard Rate: 5%
• Governing Legislation: UAE Federal Decree-Law No. 8 of 2017

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.

For example, when a manufacturer sells a mobile phone to a wholesaler, the manufacturer charges VAT and pays it to the government. When the wholesaler sells to a retailer, they charge VAT but can claim a credit for the VAT they paid to the manufacturer. Similarly, the retailer charges VAT to the end consumer but can claim a credit for the VAT paid to the wholesaler. This ensures that tax is collected at each stage while avoiding double taxation

VAT Rates and Categories in the UAE

UAE VAT has three primary categories:

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 VAT is Calculated in the UAE with Examples

VAT in the UAE is calculated using the following core formula:

Net VAT Payable = Output VAT- Input VAT

• Output VAT is the VAT collected on sales.
• Input VAT is the VAT paid on business purchases.

Step-by-Step Calculation:

1. Calculate Input VAT (on purchases): Example: Purchase goods worth AED 1,000 at 5% VAT. Input VAT = 1,000 × 5% = AED 50.
2. Calculate Output VAT (on sales): Example: Sell goods for AED 2,000 at 5% VAT. Output VAT = 2,000 × 5% = AED 100.
3. Determine Net VAT Payable: Net VAT = Output VAT – Input VAT = 100 – 50 = AED 50.
4. Adding VAT to Net Price: Total Price = Net Price × (1 + VAT Rate)

Example: Net price AED 200 → Total price = 200 × 1.05 = AED 210.

Subtracting VAT from Gross Price:

Net Price=Gross Price/(1+VAT Rate)

• Example: Gross price AED 210 → Net price = 210 / 1.05 = AED 200.

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.

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

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.

Special VAT Considerations in UAE

Here are some special considerations related to VAT compliance in UAE

VAT Recovery and Refunds

When input tax exceeds output tax in a VAT return, the taxable person can request a VAT refund through the VAT 311 form available on the FTA portal. The FTA will review refund claims within 20 business days and notify the taxpayer of its decision to accept or reject the claim. Once approved, the refund amount will be paid within five business days.

Zero-Rating Export of Services

For businesses exporting services, special zero-rating provisions apply. To qualify for zero-rating, the following conditions must be met:

1. Recipient's Place of Residence: The service recipient must not have a place of residence in the UAE
2. Physical Presence of the Recipient: The recipient must generally be located outside the UAE when the service is performed. If the recipient is temporarily present in the UAE for less than 30 days, zero-rating may still apply, provided their presence is unrelated to the service
3. Service Type: Certain services are excluded from zero-rating based on their nature.

VAT for Tourists

Tourists visiting the UAE pay VAT at the point of sale but may be eligible for refunds on purchases made within the country. This system encourages tourism while ensuring tax collection.

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

Conclusion

The UAE’s VAT regime is straightforward but strict: a flat 5 % applies to most goods and services, with carefully defined zero-rated and exempt categories.

Businesses crossing the AED 375,000 threshold (or any non-resident making taxable supplies) must register, issue compliant tax invoices, file monthly or quarterly VAT 201 returns within 28 days, and keep records for at least five years. Input-tax credits, reverse-charge rules, and timely refund claims can all optimise cash flow, but steep penalties for late registration, filing, or payment make robust processes and accurate ERP configuration essential.