The UAE charges 5 % Value Added Tax (VAT) on most goods and services. VAT registration with the Federal Tax Authority (FTA) is mandatory once taxable supplies exceed AED 375,000 in any rolling 12-month period. Voluntary registration is available above AED 187,500. Registration is free; the cost burden comes from compliance — typically AED 3,500 to AED 7,000 annually for advisory support. Last updated: May 2026.
For the broader GCC tax framework, see taxation in the GCC: a complete guide for foreign businesses. For corporate tax specifically, see UAE Corporate Tax: how the 9 % rate works in 2026.
What supplies are subject to UAE VAT?
UAE VAT applies to three categories of supply:
Standard-rated (5 %) — most goods and services, including commercial rent, professional services, electronics, dining, entertainment, hospitality, and retail.
Zero-rated (0 %) — exports of goods and services outside the GCC, international transportation, first sale of residential property within 3 years of completion, specified education services, and specified healthcare services. Zero-rated supplies attract no VAT but allow the supplier to reclaim input VAT.
Exempt — residential property rental, certain financial services (interest, life insurance), bare land, and local public transportation. Exempt supplies attract no VAT and do not allow input-VAT recovery.
When must a business register for VAT?
VAT registration is triggered at two thresholds:
- Mandatory registration: taxable supplies and imports exceed AED 375,000 in any rolling 12-month period (past or projected)
- Voluntary registration: taxable supplies and imports exceed AED 187,500
Registration is processed through the FTA’s EmaraTax portal and typically takes 5 to 10 business days. There is no registration fee. Late registration incurs an AED 10,000 penalty.
Free zone companies, mainland companies, and offshore entities with qualifying UAE-sourced supplies are all subject to VAT registration if they meet the threshold. A zero-revenue startup does not need to register until projected revenue crosses AED 187,500 (voluntary) or AED 375,000 (mandatory).
How does VAT filing work?
VAT returns are filed quarterly for most businesses, with a filing deadline of 28 days after the end of each tax period. Large businesses may be assigned monthly filing. VAT returns are submitted and payments made through the EmaraTax portal.
Each return reports output VAT (charged to customers) minus input VAT (paid to suppliers). If output exceeds input, the difference is payable to the FTA. If input exceeds output (common for exporters and businesses in the investment phase), a refund can be claimed.
Late filing incurs AED 1,000 for a first offence and AED 2,000 for repeated offences within 24 months. Late payment penalties follow the revised framework under Cabinet Decision No. 129 of 2025 — 14 % annual interest with no cap.
How does VAT interact with corporate tax?
VAT is a consumption tax — it is collected from customers and remitted to the FTA. It is not an expense to the business (assuming input VAT is fully reclaimable). Corporate tax is levied on net profit, not on revenue, so VAT collected and remitted does not affect the corporate tax base.
The interaction matters in two scenarios:
- Exempt supplies — businesses making exempt supplies (financial services, residential rent) cannot reclaim input VAT on related expenses. The unrecoverable input VAT becomes a real cost that reduces net profit and therefore reduces the corporate tax base.
- Mixed supplies — businesses with both taxable and exempt activities must apportion input VAT between reclaimable and non-reclaimable portions using the standard input-tax-apportionment method.
What is the UAE e-invoicing framework?
The UAE Ministry of Finance published E-Invoicing Guidelines Version 1.0 in February 2026. The framework requires businesses to appoint an Accredited Service Provider (ASP) and implement electronic invoicing on a phased timeline:
- Phase 1: Businesses with revenue above AED 50 million must appoint an ASP by 31 July 2026 and implement e-invoicing by 1 January 2027
- Phase 2: Smaller businesses follow later phases, with a 1 July 2027 implementation target
ASP fees typically range from AED 8,000 to AED 25,000 annually. Penalties for e-invoicing non-compliance are defined under Cabinet Decision No. 106 of 2025.
Frequently asked questions
Does a free zone company need to register for VAT?
Yes — if the free zone company’s taxable supplies (including intra-free-zone and international supplies) exceed AED 375,000 in any 12-month period. Free zone status does not exempt a company from VAT registration. Supplies within Designated Zones between businesses are generally not subject to VAT, but supplies from a free zone to mainland are standard-rated at 5 %.
Is the UAE 5 % VAT rate likely to increase?
No public announcement has been made regarding a UAE VAT rate increase as of May 2026. Saudi Arabia raised its rate from 5 % to 15 % in 2020. Bahrain introduced VAT at 5 % in 2019 and raised it to 10 % in 2022. A future UAE increase cannot be excluded but is not currently scheduled.
Can tourists claim a VAT refund in the UAE?
Yes. The UAE operates a Tourist VAT Refund Scheme through Planet Tax Free at participating retailers. Tourists can reclaim VAT on purchases above AED 250 per transaction when departing through UAE airports.
Sources and further reading
- Federal Decree-Law No. 8 of 2017 — UAE VAT Law
- Cabinet Decision No. 52 of 2017 — UAE VAT Executive Regulations
- Cabinet Decision No. 129 of 2025 — Revised penalty framework, effective 14 April 2026
- Cabinet Decision No. 106 of 2025 — E-invoicing penalty framework
- UAE Ministry of Finance — E-Invoicing Guidelines Version 1.0, February 2026
- UAE Federal Tax Authority — VAT registration and filing (tax.gov.ae)