Value Added Tax (VAT) started in the UAE on 1 January 2018 under Federal Decree-Law No. 8 of 2017. If you run a business in the UAE, or are about to, this guide covers what you need to know to stay on the right side of it.
The basic idea
VAT is a tax on spending. A registered business adds VAT to its sales and pays that to the Federal Tax Authority (FTA), after deducting the VAT it paid on its own business costs. The final consumer, who cannot reclaim anything, bears the tax.
- Output tax is the VAT you charge on your sales.
- Input tax is the VAT you pay on business purchases.
- Each period you pay the FTA output tax minus input tax. If input is higher, you can claim the difference back.
Example. In a quarter you sell AED 200,000 of services and charge AED 10,000 VAT. You buy AED 60,000 of supplies and pay AED 3,000 VAT. You pay the FTA AED 10,000 − AED 3,000 = AED 7,000.
The rates
| Rate | Applies to |
|---|---|
| 5% (standard) | Most goods and services |
| 0% (zero-rated) | Exports outside the UAE (with conditions), international transport, certain education and healthcare, first supply of new homes, investment-grade precious metals |
| Exempt | Certain financial services, residential rent after the first supply, bare land, local passenger transport |
The difference between zero-rated and exempt is important: zero-rated businesses can reclaim input tax, exempt ones cannot. See zero-rated vs exempt supplies.
Do you have to register?
You must register if your taxable supplies and imports are over AED 375,000 in the last 12 months, or are expected to be in the next 30 days. You can register voluntarily from AED 187,500. Use the VAT registration checker to see where you stand, and read our guide to the registration thresholds.
What registration means day to day
Charging VAT. Add 5% to standard-rated sales. Our VAT calculator does the arithmetic.
Issuing tax invoices. Invoices must show specific details, including your TRN. See what a valid tax invoice must include.
Filing returns. Most businesses file quarterly; some file monthly. Returns and payment are due by the 28th day after the end of each period. See VAT return deadlines.
Keeping records. Keep invoices, credit notes, import documents and accounts for at least five years (longer for real estate).
Reclaiming input tax. You can recover VAT on most business costs, with some exceptions. See reclaiming input VAT.
The penalties to know about
The penalty rules changed with Cabinet Decision No. 129 of 2025, effective 14 April 2026. Late registration is AED 10,000; a late return is AED 1,000 the first time; late payment now attracts a percentage charge that builds up monthly. See UAE VAT penalties in 2026.
E-invoicing is coming
From 2027, B2B and B2G invoices must be issued through the national e-invoicing system. VAT still works the same way, but how you issue invoices changes. Check your date with the e-invoicing deadline checker.
A year in the life of a small VAT-registered business
Month 1. The business registers, gets its TRN and updates its invoice template. Every invoice now shows “Tax Invoice”, the TRN and the VAT amount in AED.
Each month. It issues invoices within 14 days of each sale, files purchase invoices from suppliers, and checks that each one is addressed correctly to the business.
Each quarter. It reconciles sales and purchases, files the VAT return and pays by the 28th day after the quarter ends.
Each year. It reviews whether its supplies are standard-rated, zero-rated or exempt, checks blocked costs such as client entertainment, and keeps records for at least five years.
Common beginner mistakes
- Charging VAT before registration is approved
- Forgetting to account for VAT on services bought from abroad under the reverse charge
- Claiming input VAT on invoices made out to the owner personally
- Treating zero-rated and exempt sales as the same thing
- Paying on the 28th and missing the deadline because of bank processing time
