Everything you need to know about VAT implementation in the UAE

The United Arab Emirates introduced Value Added Tax (VAT) on 1 January 2018 at a standard rate of 5%. VAT is a consumption tax collected in stages along the supply chain: businesses charge VAT on sales and recover VAT incurred on business inputs, while the final consumer bears the cost. This guide summarises the UAE framework, the role of the Federal Tax Authority (FTA), business obligations, zero rated vs exempt sectors, and practical cases such as real estate and imports.

VAT mechanics in brief

VAT is an indirect tax, distinct from sales tax because it applies to goods and services at each stage of the chain, including the final sale and imports. A registered business charges VAT on sales (output tax) and deducts VAT on purchases (input tax). The net amount is either paid to, or reclaimed from, the FTA.

Registration thresholds

• Mandatory registration where taxable supplies plus imports exceed AED 375,000 in any rolling 12month period.
• Voluntary registration where supplies exceed AED 187,500, or where expenses exceed this threshold (useful for startups with input VAT but limited turnover).
• All businesses should keep accurate accounting records to evidence their VAT position.

Obligations for VAT registered businesses

• Charge VAT on taxable supplies at 5% (or 0% where applicable);
• Recover input VAT related to business activities;
• Maintain books and records enabling FTA reviews;
• File VAT returns periodically (online) and settle net VAT, or request refunds when input VAT exceeds output VAT.

Zero rated and exempt sectors

Selected zero rated (0%) supplies

• Exports of goods and services outside the GCC;
• International transport and related services;
• Supplies of certain means of transport (ships, aircraft, qualifying land vehicles);
• Investmentgrade precious metals (e.g., 99% gold/silver);
• New residential property first supply within 3 years;
• Certain education and healthcare services and closely related supplies.

Selected exempt supplies

• Specified financial services as defined in VAT law;
• Residential property (other than first supply);
• Bare land;
• Local passenger transport.

For mixed transactions, the company must allocate deductible VAT between expenses related to taxable and exempt transactions (default method: input tax ratio; alternative methods possible with FTA agreement when “fairer”).

Real estate: residential vs commercial

• Commercial property: sales and leases are taxable at 5%.
• Residential property: generally exempt. To keep developers whole, the first supply of new residential units within three years of completion is zero rated.

Government entities

Government entities are generally in scope to avoid competitive distortions. Supplies not in competition or provided on a sole provider basis may be outside scope. Certain entities are eligible for VAT refunds to maintain budget neutrality between outsourced and insourced delivery.

VAT within the GCC

Implementation in the UAE is part of the coordination between the Gulf Cooperation Council states (economic and customs agreements). This concerns, in particular, the treatment of intra/extra-GCC exports, imports, the management of cross-border flows, and the consistency of invoicing rules.

Filing and payment process

• Frequency: monthly or quarterly, depending on the company’s profile.
• Portal: entry of transactions, calculation of net amount payable (VAT collected – VAT deductible), online filing and payment.
• VAT credits: refund requests are possible when deductible VAT exceeds collected VAT (subject to FTA conditions and deadlines).

Compliance and audits

• Accuracy of declarations (rates, taxable base, supporting documents);
• Reconciliation of records (sales/purchases) and documents (contracts, proof of delivery, invoices, etc.);
• Monitoring of FTA/MoF updates (guides, decisions, FAQs);
• Responsiveness to requests for information or audits from the FTA.

Operational good practice

• Map your cash flows (local sales, 0% exports, imports, exempt transactions) and define robust allocation rules.
• Equip invoicing (format, information, TRN) and deductible VAT review (eligibility, pro rata).
• Train finance/sales teams; implement checklists for deadlines and documents.
• Regularly audit past periods to make corrections in advance (reverse charge, adjustments, credit notes).

Quick FAQs

• Should VAT be charged to foreign customers? Exports outside the GCC may be zero-rated (subject to conditions: proof of export, deadlines). Services must be analyzed on a case-by-case basis (place of use, beneficiary).
• Can all input VAT be recovered? No: deduction requires a direct link to a taxable activity and compliance with formal requirements (invoices). Exempt or mixed activities require an allocation key.
• What are the penalties? Penalties may apply for late registration, failure to file, material errors, or late payment. Proactive monitoring limits these risks.

At 5%, UAE VAT underpins modern public finance while remaining neutral for well organised businesses. Understanding scope and rates, meeting registration and filing duties and keeping defensible records are key to avoiding risk and optimising input recovery.

Our tax law experts are available to answer all your questions and provide advice. Consultations can be held in person or via videoconference. You can book an appointment directly online at www.agn-avocats.fr.