VAT in the UAE: Full Guide to Value Added Tax

A comprehensive overview of VAT: rates, deadlines, penalties, Designated Zones, and legislation.

Since January 1, 2018, Value Added Tax (VAT) has been applied in the UAE at a standard rate of 5%. The tax covers the entire country, including free zones.

VAT obligations apply to the following categories:

• Companies carrying out taxable supplies.
• Importers of goods.
• Registered taxpayers receiving goods or services.

VAT applies regardless of business location and extends to religious, charitable, and other organizations.

A company is required to register for VAT if the value of its taxable supplies and imports exceeds AED 375,000 in the previous 12 months, or if it is expected to exceed this threshold within the next 30 days. This is the mandatory registration threshold.

Voluntary registration is available if:

• Taxable supplies or imports exceed AED 187,500 in the previous 12 months.
• It is expected that they will exceed this threshold within the next 30 days.

To register voluntarily, a company must:

• Operate within the UAE.
• Intend to make taxable supplies.

Non-residents making taxable supplies in the UAE must register if no local entity is responsible for VAT on their behalf.

Example:
A Dubai startup has not yet made sales but has incurred taxable expenses of AED 200,000 on equipment and services subject to VAT. Since these expenses exceed the voluntary threshold of AED 187,500, the business is eligible for voluntary VAT registration.

The VAT return period is three months. The deadline for filing and payment is the 28th day of the month following the end of the tax period.

Example: If the tax period ends on March 31, the VAT return and payment must be submitted by April 28.

The UAE tax system is overseen by three main authorities:

• Federal Tax Authority (FTA): Administration and enforcement of VAT.
• Ministry of Finance: Tax policy development.
• Free Zone Regulators: Monitoring VAT compliance within free zones.

Some free zones have been classified as Designated Zones with a special VAT regime. Supplies of goods within a Designated Zone are VAT-exempt if goods do not leave the zone. However, services are subject to VAT at the standard rate.

Companies in Designated Zones must register with the FTA and file VAT returns like any other taxpayer.

To qualify as a Designated Zone, a territory must:

• Be fenced and secured.
• Be under customs supervision.
• Have a security system.
• Maintain records of goods movement.

The list of Designated Zones is approved by Cabinet Decision No. 59 of 2017.

Cabinet Decision No. 40 of 2017 sets penalties for VAT violations, including:

• Missing VAT in the invoice — AED 5,000.
• Failure to issue a tax invoice — AED 5,000 per case.
• Error in a tax credit note — AED 5,000.
• Violation of electronic document format — AED 5,000.

Additional penalties may be imposed by the FTA for breaches of rules related to storage and movement of goods in Designated Zones under Articles 38 and 43 of Federal Decree-Law No. 8 of 2017.

Key VAT laws include:

• Federal Decree-Law No. 8 of 2017 — primary VAT legislation.
• Federal Decree-Law No. 18 of 2022 and No. 16 of 2024 — amendments.
• Cabinet Decisions Nos. 52, 40, 59, and others — executive rules, penalties, and Designated Zone regulations.

What records are required and how long must they be kept?
Companies must keep accounting and tax records that prove their taxable activities and obligations.
According to Cabinet Decision No. 52 of 2017, Article 72, taxpayers must maintain detailed records of all supplies of goods and services, including supplier details and the Emirate in which the supply occurred.
For e-commerce, if taxable supplies through electronic channels exceed AED 100 million in a calendar year, records must show in which Emirate supplies were received. Retention: 18 months or 2 years, depending on when the threshold was exceeded.
Cabinet Decision No. 74 of 2023, Article 3 requires all taxpayers to keep:

• Accounting records.
• Tax invoices.
• Tax credit notes.
• VAT returns.
• Supporting documentation.

Retention periods:

• 5 years from the end of the tax period (taxpayers).
• 5 years from the calendar year in which the record was created (other entities).
• 15 years for real estate-related records.

Extensions:

• +4 years if under dispute with the FTA.
• +4 years if under audit.
• +1 year if voluntary disclosure is filed in the fifth year.
• +1 year for legal representatives, starting from termination of representation.

What are the VAT obligations for businesses in the UAE?
Registered companies must:

• Charge VAT on taxable supplies.
• Submit VAT returns regularly (quarterly or monthly, depending on turnover).
• Maintain VAT-compliant records, invoices, and accounts.
• Retain records for at least 5 years.
• Claim input VAT on eligible business expenses.

These obligations are set under Federal Decree-Law No. 8 of 2017 and Cabinet Decision No. 52 of 2017.

Can customs duties be offset against VAT?
No. Under Article 54 of Federal Decree-Law No. 8 of 2017, customs duties cannot be offset against VAT payable or refundable. Customs duties and VAT are separate obligations due upon import.

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