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Value Added Tax (VAT) was introduced in the UAE in January 2018 at a standard rate of 5%. It is an indirect tax levied on most goods and services sold and consumed within the country. As a general consumption tax, VAT is implemented across more than 150 countries worldwide and serves as a sustainable source of public revenue.
The UAE government utilizes VAT collections to fund essential public services such as healthcare, education, infrastructure, public transport, and more. This initiative is part of the country’s broader vision to reduce reliance on oil-generated income and diversify economic growth.
Under the VAT system, tax is collected at each stage of the supply chain. While businesses are responsible for charging and collecting VAT, the actual cost is ultimately borne by the end consumer.
A business must register for VAT if the total value of its taxable supplies and imports exceeds AED 375,000 in a 12-month period.
Businesses may choose to register voluntarily if:
All businesses operating in the UAE must maintain accurate financial records and determine if they meet the VAT registration criteria. Even those not registered should retain records in case of future VAT obligations.
If registered, businesses must:
VAT is charged at 0% on specific goods and services, including:
Certain goods and services are exempt from VAT:
If a VAT-registered business incurs expenses used for both taxable and non-taxable supplies (e.g., in the banking sector), VAT recovery must be proportionate. A fair apportionment method, typically based on the input tax ratio, must be used — subject to approval by the Federal Tax Authority (FTA).
Government entities are also subject to VAT to ensure fair competition with private businesses. However, if their services do not compete with the private sector or they are the sole providers, those services may be excluded from VAT scope.
Government entities can claim VAT refunds to avoid budgetary imbalances and maintain a level playing field in outsourced vs. insourced services.
Any business whose taxable supplies and imports exceed AED 375,000 must register for VAT.
VAT incurred on personal expenses, entertainment, or non-business-related vehicle costs cannot be claimed.
Yes, but some categories like education and healthcare are zero-rated. The UAE is also evaluating a Tourist Refund Scheme to enable VAT refunds on certain purchases.
VAT payable = VAT collected on sales (output VAT) – VAT paid on purchases (input VAT).
Yes, if:
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