VAT is a consumption tax. Final customers bear it, businesses collect it and the Federal Tax Authority (FTA) administers it. The UAE introduced it on 1 January 2018 at 5%.
Why VAT exists
VAT is used in well over 150 countries. The UAE introduced it to build a new revenue source for public services and reduce dependence on oil. Registered businesses add VAT to their sales and pass it to the government, after deducting the VAT they paid on purchases.
Types of supply
- Standard rate (5%): most goods and services.
- Zero-rated (0%): exports, international transport, certain education and healthcare, newly built residential property (first supply within three years of completion) and investment-grade precious metals. You still charge VAT at 0% and can recover the VAT you paid.
- Exempt: residential rent and resale, bare land, local passenger transport and certain financial services. No VAT is charged, and related input VAT is generally not recoverable.
VAT compared with sales tax
Sales tax is charged on the final sale. VAT is charged at every stage of the supply chain, with each business recovering the VAT it paid. That reduces evasion, since each stage is documented.
Free zones and designated zones
Some free zones are Designated Zones, treated as outside the UAE for certain VAT purposes. Goods moving between them can be outside VAT, while dealings with the mainland usually bring VAT. Not every free zone is a Designated Zone, so check the Cabinet list.
Registration
- Mandatory if taxable supplies and imports exceed AED 375,000 in 12 months.
- Voluntary if they exceed AED 187,500.
Apply through the FTA e-services portal. Complete applications are typically processed within about 20 business days, after which you receive a tax registration number (TRN).
Returns and payment
Returns are filed electronically, normally quarterly (some businesses file monthly), and are due within 28 days after the end of the tax period.
Penalties (check current FTA rates)
- Late registration: AED 10,000.
- Late return: AED 1,000, rising to AED 2,000 for a repeat within 24 months.
- Late payment: 2% immediately, 4% after seven days and 1% per day after one month, capped at 300% of the unpaid tax.
High-sea sales
Goods sold while in transit, before entering the UAE, are generally outside the scope of UAE VAT, but you must keep documents proving the sale happened before arrival.
Records
Keep VAT records for at least five years.
See our VAT services, the VAT health check and how to file a VAT return.
Key takeaways
- VAT is 5%; zero-rated supplies still allow input VAT recovery, exempt ones generally do not.
- Register above AED 375,000; voluntary registration from AED 187,500.
- Returns are due within 28 days of the period end.
Frequently asked questions
Must every business register for VAT?
No. Registration is mandatory above AED 375,000 in taxable supplies and imports over 12 months.
What is the fine for filing late?
AED 1,000, or AED 2,000 for a repeat within 24 months, plus late payment penalties.
Are high-sea sales taxed?
Generally no, but you need documents proving the sale happened before the goods arrived.
Talk to a chartered accountant
Questions about your own situation? Reach us directly and we will reply with clear next steps.
This article is general information and not advice for your specific circumstances. Rules and thresholds change, so confirm the current position before you act.
