FAQ
What is Vat
Value Added Tax (VAT) is a key indirect tax applied to most goods and services in the UAE and over 150 countries, including the EU, Canada, Australia, Singapore, and Malaysia. It is charged at every stage of the supply chain, with the final cost borne by the end consumer.
In the UAE VAT system, registered businesses collect VAT on sales and pay VAT on purchases. The difference, representing the value added, is paid to the government. Businesses act as VAT collectors on behalf of the state, making compliance essential for smooth operations.
If you’re setting up a business in the UAE, understanding VAT in UAE is crucial for legal and financial success.
What is the difference between VAT and Sales Tax
Like sales tax, VAT (Value Added Tax) is a consumption tax, but with key differences. In many countries, sales tax applies only to goods and is charged only at the final sale. In contrast, VAT in UAE is applied on both goods and services at every stage of the supply chain, including imports, making local businesses more competitive.
Governments often prefer VAT over sales tax due to its transparency, reduced risk of tax evasion, and the role businesses play in collecting tax on the government’s behalf. This structured approach enhances compliance and supports a more efficient tax system in the UAE.
Why VAT Was Introduced in the UAE
The UAE provides high-quality public services such as healthcare, education, transportation, and infrastructure all funded by government budgets. The introduction of VAT in the UAE helps diversify income sources and supports the government’s goal of reducing reliance on oil revenues. VAT ensures sustainable funding for public services and contributes to the UAE’s long-term economic vision while maintaining a high standard of living for residents.
Governments often prefer VAT over sales tax due to its transparency, reduced risk of tax evasion, and the role businesses play in collecting tax on the government’s behalf. This structured approach enhances compliance and supports a more efficient tax system in the UAE.
UAE VAT and the GCC Agreement
The UAE, as a member of the Gulf Cooperation Council (GCC), follows the GCC Economic Agreement and Customs Union. The GCC countries collaboratively developed a unified VAT framework to ensure regional consistency. As part of this agreement, the UAE coordinates its VAT implementation with other member states, promoting economic harmony and efficient tax policies across the region.
Governments often prefer VAT over sales tax due to its transparency, reduced risk of tax evasion, and the role businesses play in collecting tax on the government’s behalf. This structured approach enhances compliance and supports a more efficient tax system in the UAE.
What is the Standard rate of VAT in the UAE
5%
How VAT is Collected in the UAE
The UAE government collects VAT through periodic VAT returns filed by registered businesses. All taxable businesses must document their taxable sales and purchases along with applicable VAT charges. They charge VAT on customer invoices and pay VAT on supplier purchases. The difference is either reclaimed or paid to the government, ensuring proper compliance with VAT regulations in the UAE.
Does VAT applies for all Goods and Services
In the UAE, VAT is charged at a standard rate of 5% on most goods and services. However, certain transactions are either exempt under Article 46 or zero-rated under Article 45 of the Federal Decree-Law No. (8) of 2017 on Value Added Tax.
What Measures does the UAE Government take to prevent Businesses from Overcharging
VAT in the UAE is designed to strengthen the country’s economic foundation. To ensure transparency, businesses must clearly show the VAT amount on each transaction, allowing consumers to make informed purchasing decisions. This promotes trust and accountability in the UAE tax system.
VAT Objection and Appeal Process in the UAE
If a person disagrees with a decision by the Federal Tax Authority (FTA), they can request a reconsideration within 20 business days of notification. The FTA must respond within 20 business days of receiving the request.
If unsatisfied with the FTA’s revised decision, the person can file an objection with the Tax Disputes Resolution Committee within 20 business days, after paying the disputed tax and penalties. The Committee typically issues a decision within 20 business days.
As a final step, if the outcome is still unsatisfactory, the person may appeal to the competent court within 20 business days of the Committee’s decision.
How do I include my Customs Registeration in my records at the FTA
Log in to the FTA e-Services portal, navigate to the VAT section, click EDIT, and enter your Customs Registration Number (CRN). Your records will be updated automatically.
Provisional TRN and Tax Registration Certificate
If you receive a Provisional TRN via email, your Tax Registration Certificate will be issued once the FTA completes the full review of your application.
What is a Residential Building for VAT purposes
A residential building is designed for individuals to live in as their main place of residence. It excludes:
Movable structures not fixed to the ground
Hotels, motels, B&Bs, hospitals, or similar
Serviced apartments offering additional services beyond accommodation
Buildings constructed or converted without legal authorization
What is a Commercial Building for VAT purposes
A commercial building is any building or part of one that is not residential. Examples include offices, warehouses, hotels, shops, and similar properties.
What is a supply in relation to real estate
A supply of real estate may include the sale, lease or giving the right in any real estate.
Are Residential Buildings subject to VAT
The first supply of a new residential building within three years of construction is zero-rated for VAT. Any subsequent supplies, even within that period, are VAT-exempt.
Are Commercial Buildings subject to VAT
All supplies of commercial properties are subject to 5% VAT, including any buildings or parts that do not qualify as residential.
Does the Real Estate Owner has to register for VAT
Owners of residential buildings making only exempt supplies are not required to register for VAT unless they have other taxable business activities. However, owners of commercial properties must register if their taxable supplies exceed AED 375,000 in the past 12 months or are expected to in the next 30 days.
Can a Real Estate Owner recover VAT paid in relation to real estate
Owners of residential buildings cannot recover VAT on expenses related to exempt supplies. In contrast, owners of commercial buildings can generally recover VAT on expenses related to their taxable supplies.
VAT Treatment for Mixed-Use Buildings in the UAE
The rent or sale of residential units is either zero-rated (first supply within 3 years) or exempt (subsequent supplies). The commercial portion is always subject to 5% VAT.
If expenses relate to both exempt and taxable supplies, input VAT must be apportioned, and only the portion related to taxable supplies (at 0% and 5%) can be recovered.
VAT on Property Rentals in the UAE
Residential rent is generally exempt from VAT, while the rent of commercial properties is subject to 5% VAT.
VAT Registration Thresholds in the UAE
Businesses must register for VAT in the UAE if their taxable supplies and imports exceed AED 375,000 annually. They may also register voluntarily if:
Supplies/imports exceed AED 187,500, or
Expenses exceed AED 187,500 allowing startups with no turnover to register.
Key Responsibilities of VAT-Registered Businesses in the UAE
VAT-registered businesses in the UAE must:
Charge 5% VAT on all taxable goods and services
Reclaim input VAT on eligible business expenses
Maintain proper VAT records, including tax invoices
Submit periodic VAT returns to the Federal Tax Authority (FTA)
Preparing Your Business for VAT Compliance in the UAE
To meet VAT obligations, businesses must assess the impact on their operations, accounting, technology, and even staffing. Understanding VAT implications and aligning your business model with government compliance requirements is essential for smooth and accurate reporting.
VAT Registration Deadline in the UAE
Anyone required to register for VAT in the UAE must apply within 30 days of becoming liable.
Submit your VAT registration via the FTA e-Services Portal at www.tax.gov.ae.
Filing VAT Returns in the UAE
Taxable persons must file their VAT returns online via the FTA e-Services portal within 28 days after the end of each tax period.
VAT Record-Keeping Requirements in the UAE
Businesses must maintain records that allow the Federal Tax Authority (FTA) to verify their activities and transactions. Required documents and retention periods are specified in Federal Law No. (7) of 2017 and Cabinet Decision No. (36) of 2017 on tax procedures.
VAT Invoice Retention Period for Individuals in the UAE
All taxable persons must retain VAT invoices issued and received for at least 5 years as per UAE tax regulations.
Place of Supply Rules for VAT in the UAE
The place of supply determines if UAE VAT applies.
For goods, it’s generally where the goods are located at the time of supply, with special rules for items like water, energy, and cross-border goods.
For services, it’s usually where the supplier is established, except for specific services such as catering, where VAT applies where the service is performed.
VAT Treatment of Real Estate in the UAE
Commercial properties (sales or leases) are subject to 5% VAT.
Residential properties are generally VAT-exempt to avoid irrecoverable costs for owners.
The first supply of new residential properties within 3 years of completion is zero-rated, allowing developers to recover VAT on construction.
Zero-Rated VAT Supplies in the UAE
VAT is charged at 0% on key supplies, including:
Exports outside the GCC
International transportation and related services
Certain sea, air, and land transport (e.g., aircraft, ships)
Investment-grade precious metals (e.g., 99% pure gold, silver)
New residential properties sold within 3 years of construction
Specific education services and related goods
Certain healthcare services and related goods
VAT-Exempt Supplies in the UAE
The following supplies are exempt from VAT in the UAE:
Certain financial services
Residential properties (except the first supply of new residential property, which is zero-rated)
Bare land
Local passenger transport
VAT Grouping in the UAE
Businesses meeting specific criteria such as UAE residency and being related or associated parties can register as a VAT group. This simplifies VAT accounting by treating the group as a single taxable entity.
Bad Debt Relief for VAT Registered Businesses in the UAE
VAT-registered businesses can reduce their output VAT liability by the amount of VAT on bad debts written off, subject to specific conditions and limitations outlined in the legislation.
VAT on Second-Hand Goods in the UAE
To prevent double taxation, VAT-registered businesses buying second-hand goods from unregistered sellers can apply the margin scheme. VAT is calculated only on the profit margin (difference between purchase and sale price), not the full sale value. Conditions apply as per the Executive Regulations of Federal Decree-Law No. (8) of 2017.
Recovering Input VAT in the UAE
VAT-registered businesses can recover input VAT in full if expenses relate to taxable supplies or intended taxable activities. For expenses linked to exempt supplies, input VAT is not recoverable.
When expenses relate to both taxable and exempt supplies, input VAT must be apportioned fairly, typically based on the ratio of recoverable to total input tax. Alternative methods can be used with FTA approval.
VAT Penalties for Non-Compliance in the UAE
Penalties apply for failing to comply with VAT laws, including:
Not registering when required
Missing tax return submissions or payments deadlines
Failing to maintain required records
Deliberate tax evasion or fraudulent acts
VAT Support for SMEs in the UAE
No special VAT rules exist for small or medium enterprises (SMEs), but the FTA offers helpful resources and guidance on its website to support SMEs with their VAT-related queries.
VAT Rules for Supplies Spanning VAT Introduction in the UAE
Special VAT rules apply when supplies span the VAT implementation date:
Payments received before VAT introduction but goods delivered after require VAT to be charged.
Contracts made before VAT introduction without VAT clauses are treated as VAT-inclusive for supplies made after VAT starts.
Suppliers can still charge VAT if recipients can recover it, even if contracts lack VAT terms.
VAT on Insurance Services in the UAE
Most insurance services like vehicle and medical insurance are subject to VAT. However, life insurance is considered an exempt service under UAE VAT law.
VAT on Financial Services in the UAE
Fee-based financial services are subject to VAT, while margin-based products are exempt from VAT.
VAT Treatment of Islamic Finance Products in the UAE
Islamic finance products follow Sharia principles and may differ from conventional financial products. To maintain consistency, their VAT treatment aligns with equivalent standard financial services under UAE VAT law.
VAT Refund Scheme for UAE Nationals on New Residential Construction
UAE nationals can reclaim VAT paid on goods and services related to building new private residences for personal and family use, including contractor fees and building materials.
VAT Refunds in the UAE
Refunds are processed after application submission and thorough verification checks to prevent fraud.
FTA Guidance and Taxpayer Compliance in the UAE
The FTA may issue opinions on tax matters, which taxpayers can challenge. However, penalties apply if taxpayers violate tax laws or regulations.
VAT Invoice Requirements in the UAE
Registered taxable persons must issue valid VAT invoices for taxable supplies, including all mandatory details as per legislation. In some cases, a simplified VAT invoice may be issued under specific conditions outlined by the law.
Conditions for Claiming VAT Refund on Business Expenses in the UAE
Businesses can deduct VAT on expenses if:
They are a taxable person
VAT was correctly charged
Valid documentation (e.g., tax invoice) is held
Goods/services are used for taxable supplies
VAT is claimed within 6 months of the payment due date
VAT Registration for Non-Residents in the UAE
Non-residents making taxable supplies in the UAE must register for VAT unless a UAE resident is responsible for accounting for VAT on their behalf.
VAT on Imported Goods and Services in the UAE
VAT applies to goods and services imported into the UAE.
If the recipient is VAT-registered, VAT is accounted for via the reverse charge mechanism.
If not registered, VAT must be paid before goods release.
VAT on Supplies by Government Entities in the UAE
Government supplies are generally subject to VAT to ensure fair competition with private businesses. However, supplies not competing with the private sector or where the government is the sole provider may be exempt. Government entities may also be eligible for VAT refunds. VAT treatment depends on the nature of the supply, not the recipient.
Fee-based financial services are subject to VAT, while margin-based products are exempt from VAT.
Reporting VAT Revenues by Emirate in the UAE
Businesses must report revenue earned in each Emirate when filing VAT returns, as required by the Executive Regulation of Federal Decree-Law No. (8) of 2017 on VAT.
VAT on Imported Goods in the UAE
Imported goods may be exempt from customs duties but are still subject to VAT under UAE law.
Restaurant Eligibility for VAT Registration in the UAE
Restaurants selling goods eligible under the VAT scheme can register for VAT.
VAT on Tourist Purchases and Tax Refunds in the UAE
Tourists pay VAT on goods and services purchased in the UAE but can reclaim VAT through the Tax Refunds for Tourists Scheme, subject to specific conditions.
VAT Refunds for Business Visitors in the UAE
Yes, business visitors can claim VAT refunds. For more details, refer to the VAT Refund for Business Visitors User Guide.
Access UAE Federal Tax Laws and Regulations
All Federal Tax Laws, Executive Regulations, and Cabinet Decisions are available in the “Legislation” section on the Federal Tax Authority (FTA) website.
Future Tax Plans in the UAE
Following global best practices, the UAE is exploring additional tax options, but none are expected soon. Personal income tax is currently not under consideration.
