Value-added tax in the UAE

The UAE

Taxes and accounting

Value-added tax in the UAE

VAT is one of the main taxes in the UAE, introduced in 2018. Its mechanism is similar to VAT in other jurisdictions. Let’s go over the key aspects of this tax in the UAE.

Overview

Rate and Application

The standard VAT rate in the UAE is 5%.

Similar to other countries, there are supplies of goods and services subject to 0% VAT and those that are exempt from VAT.

One of the most common types of supplies subject to 0% VAT is the export of goods and services.

Key features of exempt supplies:

Do not require VAT registration.
No reporting obligations.
Input VAT paid for making exempt supplies cannot be deducted.

Taxable supplies include both domestic supplies within the UAE and exports (at 0%). However, recently the tax authority has been refusing VAT registration to companies with only export supplies.

Taxable imports include the purchase of goods and services followed by import. For services, the place of supply must be the UAE.

“If a non-resident supplies goods or services to a UAE-resident importer, the UAE resident must account for VAT under the reverse charge mechanism. The non-resident supplier issues the invoice without VAT, while the UAE buyer accounts for and reports the VAT.” Artur Faniev Commercial Director

Supplies Exempt from VAT

Certain financial services: including dividend payments, loan/bond/deposit interest
Residential real estate sales and rentals (except those at 0% VAT)
Sales of bare land
Designated Free Zones: Jebel Ali Free Zone (JAFZA), Dubai Airport Free Zone (DAFZ), Ajman Free Zone, Umm Al Quwain Free Trade, Hamriyah Free Zone, Sharjah Airport International Free Zone (SAIF)

“The tax authority treats designated Free Zones as outside the UAE for VAT purposes. Import and sale of goods in these zones are not subject to VAT. The same applies to transactions between companies in these zones.” Sergey Kovalkov Head of International Incorporations Practice

VAT Registration

A company must register for VAT if its taxable income and/or imports exceed 375,000 AED (~USD 102,000) in the previous 12 months or are expected to exceed this threshold in the next 30 days.

Voluntary registration is possible if the taxable turnover exceeds 185,000 AED (~USD 50,000) in the previous 12 months or is expected to exceed this in the next 30 days.

A company making only 0% supplies may apply for exemption from mandatory registration.

VAT Reporting and Payment

Once registered, taxpayers must:

Include VAT in invoices sent to customers.
File VAT returns (usually quarterly) showing VAT payable.
Pay VAT due.

VAT returns are usually required:

Quarterly if turnover is below 150 million AED
Monthly if turnover exceeds 150 million AED

The tax authority may assign longer or shorter periods if deemed appropriate.

“VAT periods are specified in the VAT certificate. Returns must be filed by the 28th day of the month following the end of the tax period. Payment is due at the same time.” Sergey Kovalkov Head of International Incorporations Practice

VAT Deductions

A company can deduct VAT paid on supplier invoices and on taxable imports, provided it has a valid invoice.

Deductions are not allowed for:

Non-business expenses (e.g., entertainment, meals)
Personal-use expenses (e.g., cars for personal use)

Why Obtain a VAT Certificate?

Key benefits:

A registered VAT payer can claim input VAT deductions, recovering all VAT paid on purchases (subject to conditions).
International partners often request a tax residency certificate, which can only be issued to companies with a VAT certificate.

VAT Documentation Retention

Taxpayers must keep tax, accounting, and other records supporting VAT returns for at least:

5 years after the end of the tax period, and
15 years for real estate activities.

In some cases, the tax authority may extend these periods by an additional four years.