What is UAE VAT?
Value Added Tax (VAT) was introduced in the United Arab Emirates on 1 January 2018 at a standard rate of 5%. It applies to most goods and services, with certain exemptions and zero-rated categories defined by the Federal Tax Authority (FTA).
VAT is an indirect tax collected at each stage of the supply chain. The end consumer ultimately bears the cost, while registered businesses act as collection agents for the government.
When does VAT apply?
VAT applies to:
- Most goods and services supplied within the UAE
- Imports of goods and services into the UAE
- Deemed supplies in certain circumstances
Zero-rated supplies
Some supplies are taxed at 0%, meaning no VAT is charged but the supplier can still reclaim input VAT:
- International transport of goods and passengers
- Certain precious metals (first supply)
- Newly constructed residential properties (first supply within 3 years)
- Certain education and healthcare services
Exempt supplies
Exempt supplies carry no VAT and the supplier cannot reclaim input VAT:
- Certain financial services
- Residential property (rent and sale, except first supply)
- Bare land
- Local passenger transport
How to calculate UAE VAT
Adding VAT to a price
To add 5% VAT to a net amount:
Total = Net Amount × 1.05
For example, if a product costs AED 1,000 before VAT:
- VAT = AED 1,000 × 0.05 = AED 50
- Total = AED 1,000 + AED 50 = AED 1,050
Removing VAT from a price
To extract the VAT from a VAT-inclusive amount:
Net Amount = Total ÷ 1.05
For example, if the total price is AED 1,050:
- Net = AED 1,050 ÷ 1.05 = AED 1,000
- VAT = AED 1,050 − AED 1,000 = AED 50
VAT registration thresholds
| Threshold | Amount (AED) |
|---|---|
| Mandatory registration | 375,000 |
| Voluntary registration | 187,500 |
Businesses exceeding the mandatory threshold must register with the FTA. Those below it but above the voluntary threshold may choose to register.
Key takeaways
- UAE VAT is charged at a flat rate of 5% on most transactions.
- Understanding whether a supply is standard-rated, zero-rated, or exempt is crucial for compliance.
- Use a reliable calculator to verify your VAT amounts before issuing invoices or filing returns.
This article is for general information only and does not constitute tax advice. Always consult the Federal Tax Authority or a qualified tax professional for guidance specific to your situation.