1. Understanding VAT Basics
VAT (Value Added Tax) is a 5% tax that businesses in the UAE must add to the price of goods or services. You collect this from your customers and pay it to the Federal Tax Authority (FTA).
Example:
You sell something for AED 100
→ Add 5% VAT = AED 5
→ Customer pays AED 105
You keep AED 100. The AED 5 is given to the FTA.
2. VAT Types in the UAE
There are four VAT treatment categories recognized in the UAE, and how they apply to goods/services. It also clarifies whether businesses can recover the VAT they pay on purchases under each category.
Type | Rate | Description | Can You Claim VAT? | Examples |
Standard VAT | 5% | Most goods/services sold in the UAE | Yes | Electronics, clothes, consulting, office rent |
Zero-rated VAT | 0% | No VAT charged, still in the VAT system, can claim VAT | Yes | Exports, approved healthcare/education, flights |
VAT-Exempt | 0% | No VAT charged or claimable | No | Life insurance, local transport |
Out of Scope | N/A | Business outside UAE, no VAT involvement | Not applicable | UK-Germany sales without UAE connection |
3. Common VAT Mistakes & Penalties
This table lists frequent compliance errors and the financial consequences for each.
Mistake | Penalty |
Charging VAT without TRN | AED 10,000 fine |
Filing late | AED 1,000–2,000 |
Late payment | 2% + daily penalty |
Wrong invoice format | AED 5,000 |
Not keeping records | Up to AED 10,000 |
Late deregistration | AED 1,000/month |
4. Step-by-Step VAT Journey
- Step 1: Check if your revenue exceeds AED 375,000 (mandatory) or is between AED 187,500 and AED 375,000 (voluntary).
- Step 2: Register for VAT and receive a TRN.
- Step 3: Begin charging VAT. Add 5% for local sales and 0% for qualifying exports. Include VAT details on invoices.
- Step 4: File returns every quarter.
- Step 5: Calculate VAT: Output – Input.
- Step 6: Pay or claim the difference.
- Step 7: Keep VAT-related records for at least 5 years.
- Step 8: Avoid late fees and mistakes.
5. VAT Registration Requirements
Understand when VAT registration is mandatory, voluntary, or not required based on your annual revenue.
Revenue Amount | Registration Status |
Over AED 375,000 | Mandatory VAT registration |
AED 187,500 – AED 375,000 | Voluntary registration possible |
Less than AED 187,500 | Not required to register |
6. When Do You Charge VAT?
You only charge VAT after registering and receiving your TRN. Before registration, you cannot charge VAT, not even 0%.
You must charge 5% for most goods and services, and 0% for qualifying exports and services like healthcare or education.
7. Input vs. Output VAT
Distinguish between VAT you collect (output) and VAT you pay (input). It also shows how to calculate the VAT payable to the FTA.
Term | What It Means | Example |
Output VAT | VAT you collect from customers | AED 5000 + 5% VAT = AED 5,250 → AED 250 is Output VAT |
Input VAT | VAT you pay when buying goods/services | AED 3000 + 150 VAT = AED 3,150 → AED 150 is Input VAT |
Calculation: VAT Payable = Output VAT – Input VAT.
Example:
- You collected AED 250 in VAT from customers → Output VA
- You paid AED 150 in VAT on business expenses → Input VAT
- You need to pay AED 100 to FTA (250 – 150)
- If Input VAT is higher → you can get a refund or use it later
8. VAT Rates Based on Transaction Type
What VAT rate to charge based on who you’re selling to and whether you can claim back input VAT.
Selling To | VAT Rate | Can Claim VAT? | Notes |
UAE customers | 5% | Yes | Most local sales |
Foreign clients (exports) | 0% | Yes | Proof of export needed |
Exempt items (e.g., insurance) | Exempt | No | No VAT and no claims allowed |
When selling to entities in the education or healthcare sectors, it’s important to distinguish between the nature of the goods or services provided:
- Zero-rated VAT (0%) applies when education or healthcare providers offer core services directly related to education or medical treatment. These services are exempt from the standard VAT rate as per UAE VAT regulations.
- However, when external service providers deliver services to clients in the education or healthcare sectors (e.g., financial solutions, consultancy, or other non-core operational services), these services are subject to the standard 5% VAT rate, regardless of the client’s industry classification.
In summary, unless the services provided are directly classified under exempt or zero-rated categories, VAT at 5% will be applicable.
9. What If You Only Sell to Foreign Clients?
Even if you only deal with international clients, VAT registration rules apply based on your revenue. If your total sales go over AED 375,000, you must register for VAT. If your sales are over AED 187,500, you can register voluntarily. You still charge 0% VAT on exports and must file VAT returns and report input VAT.
Once you’re registered:
- You charge 0% VAT on invoices to foreign clients (this is called zero-rated).
- You still need to file VAT returns every 3 months, even if all your sales are at 0%.
- You can claim back VAT you paid on business expenses like rent, software, and supplies.
10. What’s the difference between zero-rated and VAT-exempt?
- Zero-rated (like exports): You don’t charge VAT, but you’re still part of the VAT system and can get refunds.
- VAT-exempt (like life insurance): You don’t charge VAT and cannot claim back any VAT paid on related expenses.
Important Note:
If you think your business activity should be VAT-exempt, there is an application and approval process. You must apply to the Federal Tax Authority (FTA) and get official confirmation before treating your services as VAT-exempt.
11. Local vs International Sales Scenarios
This table helps you understand when to register and what VAT to charge depending on whether your clients are local or abroad.
Sales Scenario | Revenue | Registration | VAT Rate | Notes |
Only UAE clients | 400,000 | Mandatory | 5% | Must register and charge 5% |
Only foreign clients | 400,000 | Mandatory | 0% | Still mandatory |
UAE + foreign clients | ≥375,000 | Mandatory | 5% local, 0% international | Must register |
Only foreign clients | 180,000 | Not Required | N/A | Below threshold |
Foreign clients (voluntary) | 200,000 | Voluntary | 0% | Can register and claim input VAT |
12. VAT Treatment by Goods & Services
These two tables provide specific VAT treatment depending on whether you’re selling goods or services.
Goods
How VAT is applied when trading goods based on the location of the buyer and seller.
Scenario | VAT Rate | Notes |
UAE to UAE | 5% | Standard rate applies |
UAE to Abroad (Export) | 0% | Proof of export required |
Goods never enter the UAE | Out of Scope | No VAT if outside the UAE entirely |
Services
VAT treatment for services depends on the location and connection of the client to the UAE.
Scenario | VAT Rate | Explanation |
UAE to UAE | 5% | Consulting, design, training services locally |
UAE to overseas – not linked to UAE | 0% | Services to foreign clients with no UAE tie |
UAE to overseas – linked to UAE activity | 5% | E.g., managing UAE-based staff or property |
13. VAT Filing Process
File every 3 months, even if there are no sales. Declare how much VAT you collected and paid. You pay the difference to FTA.
Deadline: 28th day after the quarter ends.
Example 1: You Pay VAT to the Government
Example showing how much to pay if output VAT exceeds input VAT.
VAT collected from sales | VAT paid on expenses | VAT to pay |
AED 5,000 | AED 3,000 | AED 2,000 |
Example 2: You Get a Refund
Example showing a refund scenario where input VAT exceeds output VAT.
VAT collected | VAT paid | Refund |
AED 2,000 | AED 3,000 | AED 1,000 |
14. VAT Payments and Refund
After filing, get your Payment Reference Number (PRN), you can pay via various platforms and save the confirmation. Refunds apply when input VAT is higher than output VAT. File the online form to claim.
15. Difference Between VAT Refund and VAT Credit
When your business pays more VAT on expenses (input VAT) than it collects from sales (output VAT), you don’t lose that extra VAT—you can either get it back as a refund or carry it forward as a credit.
Term | What It Means | Example |
VAT Refund | You get your extra VAT money back as cash from the FTA (Federal Tax Authority). This happens when input VAT (what you paid) is more than output VAT (what you collected). | You collected AED 2,000 in VAT but paid AED 3,000 on business expenses → You can claim back AED 1,000. |
VAT Credit | Instead of asking for a cash refund, you keep the extra VAT as a balance. You can use this to reduce your VAT payment in future tax periods. | You overpaid AED 1,000 → Instead of claiming it back, you apply it to next quarter’s VAT return. |
VAT Refund
You can apply for a refund when:
- You paid more VAT on purchases than you collected on sales.
- Your sales are mostly 0% VAT (like exports).
How to Get Your VAT Refund
- File your VAT return.
- Fill out the refund request form on the FTA portal.
- The FTA will review and process your claim.
VAT Credit
- If you don’t need the cash back urgently, you can carry forward the balance and use it in your next VAT return.
- This is useful for businesses that expect to collect more VAT in the future and want to simplify their cash flow.
16. VAT Invoice Checklist
Ensure your VAT invoices include the following:
- Your TRN
- Invoice date and number
- Description of goods/services
- Amount before VAT
- VAT rate and amount
- Total including VAT
- Customer name and details
*Save invoices for 5 years.
17. VAT Amendments
Fixing mistakes in your VAT return promptly helps avoid penalties.
Error Amount | Action |
Less than AED 10,000 | Fix in the next return |
More than AED 10,000 | Submit Voluntary Disclosure |
Voluntary Disclosure: For this you there is an official form that you have to submit on the FTA portal to correct big mistakes. It shows the FTA that you are being honest and transparent.
Tip: You need to fix errors as soon as you notice them. Waiting can lead to penalties if the FTA finds the mistake first.
18. VAT Exemption
Some supplies in the UAE are exempt from VAT. This means you do not charge VAT on them and also cannot claim back the VAT you paid on related expenses. These supplies are outside the scope of input VAT recovery.
Here are common examples of VAT-exempt supplies in the UAE and what they mean for your business.
Exempt Item | Why It’s Exempt | Can You Claim VAT? |
Life insurance | Financial services are typically exempt | No |
Local passenger transport | Public services like taxis and buses | No |
Residential property (after first supply) | Non-commercial use | No |
Bare land | Land with no buildings or development | No |
If your business provides only exempt supplies, you cannot register for VAT unless your activity changes. It’s also important not to mistakenly charge VAT on exempt items — doing so may result in penalties.
19. VAT Deregistration
You must deregister if your business closes or revenue stays below AED 187,500 for 12 months. Apply within 20 business days or face an AED 1,000/month fine.
20. Required Records to Keep
Keep these records to comply with FTA and for your own reference in case of audit or correction.
Document | Why It’s Important |
Sales invoices | Proof of VAT collected |
Purchase receipts | Proof of VAT paid |
VAT returns | Proof of filing |
Bank statements | Match payments to returns |
PRN receipts | Proof of VAT payment |
21. VAT Compliance Checklist
- Do I need to register based on revenue?
- Did I get a TRN?
- Am I charging the correct rate (5%, 0%, exempt)?
- Are my invoices compliant?
- Am I filing returns quarterly?
- Am I keeping proper records?
- Have I claimed VAT refunds if applicable?
- Do I know how to fix mistakes?
- Do I know when/how to deregister?
22. Why Choose AccountAbility
- UAE-based team with deep local VAT expertise
- Trusted by small businesses, startups, and entrepreneurs
- End-to-end VAT support — from registration to refunds
- Clear, jargon-free guidance tailored for beginners
- Timely reminders and ongoing advice for full compliance
- We save you time, reduce risks, and simplify your VAT journey
23. How AccountAbility Can Help
Understanding and managing VAT doesn’t have to be overwhelming. At AccountAbility, we support you at every step — from determining if you need to register, to submitting your VAT application, issuing compliant invoices, filing returns every quarter, and even helping you claim refunds or fix errors. Whether you’re just starting out, exporting services, or managing mixed sales, we make sure you’re always charging the correct rate and filing on time. We also assist with VAT deregistration and ensure your records are compliant with FTA requirements.
Our team simplifies the process with clear guidance and ongoing support so you can focus on growing your business while staying penalty-free.
Get in touch with us at info@accountability.ae or +971 58 955 8348 to get started.
