VAT Frequently Asked Questions (FAQs)

The VAT came into effect across the UAE on 01 January 2018. A standard rate of 5% is applicable as VAT added to the sale price.

It is the accountability of the companies to document thoroughly their business revenue and expenses along with associated VAT charges.

A prevailing VAT rate is applied by registered businesses and traders to all of their customers. Businesses pay VAT on goods and services purchased from suppliers. The difference between collected VAT and paid VAT is either paid to or reclaimed from the government.

VAT is a consumption-based tax and is applied to most transactions of goods and services, except those specifically exempted by law.

Businesses with taxable supplies exceeding AED 375,000 must complete VAT Registration in UAE.

Businesses with taxable supplies exceeding AED 187,500 but below AED 375,000 may opt for voluntary registration. This allows startups to register even before generating revenue.

All businesses in the UAE must maintain accurate and up-to-date financial records. VAT registration is mandatory for businesses meeting the required threshold.

The general responsibilities of VAT-registered businesses include:

• Collecting VAT on taxable goods and services.
• Reclaiming VAT paid on business-related expenses.
• Maintaining records for verification by authorities.

Businesses must regularly report VAT collected and paid to the authorities via online submission. Any difference must be settled or reclaimed accordingly.

VAT was implemented on 01 January 2018, with registration opening in Q3 2017. Businesses were required to align systems with government platforms.

Preparation includes ensuring compliance, updating accounting systems, and potentially restructuring departments such as finance, IT, and HR. Hiring accountants or tax advisors may also be necessary.

VAT registration started in Q3 2017 before implementation on 01 January 2018. Early registration helped businesses prepare for compliance.

Registration is now available through the FTA’s online portal for all eligible businesses.

VAT-registered businesses must file returns with the Federal Tax Authority, usually on a quarterly basis within 28 days from the end of the tax period.

VAT return filings can be completed online via UAE government e-Services.

Taxpayers must retain VAT invoices for a minimum of five years.

VAT is calculated on the value including customs duty. Therefore, VAT cannot be offset against customs duties and must be paid additionally.

VAT applies to commercial real estate transactions at 5%.

Residential properties are generally exempt. However, new residential properties are zero-rated for the first three years of construction.

VAT at 0% applies to the following:

• Exports outside the GCC.
• International transportation and related services.
• Aircraft, ships, and transport vehicles.
• Investment-grade precious metals (99% purity).
• New residential properties (first supply within 3 years).
• Education services.
• Healthcare services.

The following sectors are exempt from VAT:

• Specified financial services.
• Residential properties.
• Bare land.
• Local passenger transport.

Penalties may apply in the following cases:

• Failure to register for VAT when required.
• Late filing or payment of VAT returns.
• Failure to maintain required records.
• Tax evasion or intentional violations.

Fee-based financial services are subject to VAT, while margin-based products are generally exempt.