Value Added Tax (VAT)

The Value Added Tax (VAT) system in the UAE was introduced on January 1, 2018, as part of the country’s efforts to diversify its revenue sources and align with global tax practices. Administered by the Federal Tax Authority (FTA), VAT is an indirect tax levied on the supply of goods and services at different stages of production and distribution.

Key Features of VAT in the UAE

✅ Standard VAT Rate: The general VAT rate in the UAE is 5%, applicable to most goods and services.

✅ Zero-Rated & Exempt Supplies: Certain goods and services, such as healthcare, education, exports, and international transportation, are either zero-rated (0%) or exempt from VAT.

✅ VAT Registration Thresholds:

• Mandatory registration: Businesses with an annual taxable turnover exceeding AED 375,000 must register for VAT.

• Voluntary registration: Businesses with turnover above AED 187,500 can opt for voluntary VAT registration.

✅ VAT Compliance Requirements: Businesses must file periodic VAT returns, maintain proper records of taxable transactions, and ensure timely payment of VAT to the FTA.

✅ Input VAT Recovery: Registered businesses can claim input VAT paid on purchases, helping to offset the VAT liability on sales.

Who is Subject to VAT in the UAE?

• Businesses & Individuals supplying taxable goods and services.

• Importers of goods and services into the UAE.

• Free Zone Entities (except those in Designated Zones, where special VAT rules apply).

• E-commerce and digital service providers offering services to UAE consumers.

VAT Compliance and Filing

• VAT returns must be filed quarterly or monthly, depending on the business’s tax period assigned by the FTA.

• The deadline for VAT return filing and payment is 28 days after the end of the tax period.

• Businesses must maintain proper accounting records and issue tax invoices as per FTA guidelines.

VAT Implications for Businesses

• Impact on pricing and cash flow: Businesses need to adjust pricing structures and ensure VAT is correctly charged and collected.

• Compliance and penalties: Non-compliance with VAT regulations can result in fines and penalties imposed by the FTA.

• VAT audits and assessments: The FTA has the authority to conduct VAT audits to verify compliance.