Introduction

Value Added Tax (VAT) is one of the most important ongoing compliance obligations for businesses operating in the UAE. While the UAE remains a low-tax jurisdiction compared to the UK and Europe, VAT is now firmly embedded in the regulatory framework and applies to a wide range of commercial activities.

For many entrepreneurs — particularly those setting up in Dubai from the UK — VAT can feel unfamiliar. Questions around registration thresholds, filing obligations, invoicing, and reclaiming VAT often arise early, and mistakes can quickly lead to penalties.

This guide provides a clear, practical explanation of VAT in the UAE, focusing on what business owners actually need to know to stay compliant while keeping administration manageable.

What Is VAT in the UAE?

VAT is an indirect tax charged on the supply of goods and services at each stage of the supply chain. In the UAE, VAT is charged at a standard rate of 5%, which is significantly lower than the UK’s 20%.

Introduced in January 2018, UAE VAT applies to:

• Goods sold in the UAE
• Services supplied within the UAE
• Certain imports of goods and services

VAT is administered by the Federal Tax Authority (FTA), and compliance is taken seriously.

Who Needs to Register for VAT?

Mandatory VAT Registration

A UAE business must register for VAT if its taxable supplies and imports exceed AED 375,000 over a 12-month period.

This includes:

• Sales of goods or services subject to 5% VAT
• Zero-rated supplies (such as certain exports)

Once the threshold is exceeded, registration is compulsory.

Voluntary VAT Registration

Businesses with taxable supplies exceeding AED 187,500 may choose to register voluntarily.

Voluntary registration can be beneficial if:

• You incur significant VAT on expenses
• You want to reclaim input VAT
• You deal with VAT-registered customers who expect VAT invoices

Early registration is often helpful for growing businesses.

What Transactions Are Subject to VAT?

Standard-Rated Supplies (5%)

Most goods and services in the UAE are subject to VAT at 5%, including:

• Professional services
• Consultancy and advisory work
• Trading of goods within the UAE
• Hospitality services

Zero-Rated Supplies (0%)

Some supplies are taxed at 0%, meaning VAT is charged at 0% but still reported. These include:

• Export of goods outside the GCC
• Certain international services
• International transportation of goods and passengers

Zero-rated supplies allow businesses to reclaim VAT on related expenses.

Exempt Supplies

Exempt supplies are not subject to VAT and do not allow VAT recovery. Examples include:

• Certain financial services
• Residential property leases
• Bare land transactions

Understanding whether your income is standard-rated, zero-rated, or exempt is critical.

VAT for Free Zone Companies

A common misconception is that Free Zone companies are automatically exempt from VAT. This is not correct.

Key points:

• Free Zone companies must register for VAT if they exceed the threshold
• VAT treatment depends on where the supply takes place, not the licence type
• Designated Zones have special rules for goods, but not for services

Most service-based Free Zone companies will still charge VAT if supplying UAE customers.

VAT Registration Process in the UAE

VAT registration is completed online through the FTA portal and requires:

• Trade licence
• Passport and Emirates ID (if applicable)
• Business activity details
• Estimated turnover
• Bank account information

Once approved, the business receives a Tax Registration Number (TRN), which must be shown on all VAT invoices.

VAT Invoicing Requirements

VAT invoices must meet specific requirements under UAE law. A valid tax invoice must include:

• Supplier name and TRN
• Customer details
• Invoice date and number
• Description of goods or services
• VAT amount clearly shown
• Total amount payable

Incorrect invoices are one of the most common reasons for VAT disputes.

Filing VAT Returns

VAT returns are typically filed quarterly, though some businesses may be required to file monthly.

VAT returns include:

• Output VAT (VAT charged to customers)
• Input VAT (VAT paid on expenses)
• Net VAT payable or refundable

Returns must be submitted within the FTA deadlines, even if no VAT is due.

Reclaiming VAT: What You Can and Cannot Recover

Businesses can generally reclaim VAT on:

• Office rent
• Professional fees
• Business-related expenses
• Equipment and supplies

However, VAT cannot usually be reclaimed on:

• Personal expenses
• Entertainment costs
• Certain motor vehicle expenses

Clear separation between business and personal spending is essential.

VAT for UK Entrepreneurs Operating in the UAE

For UK founders, VAT in the UAE often feels simpler than UK VAT, but coordination matters.

Important considerations:

• UAE VAT is separate from UK VAT
• UK VAT registration does not cover UAE activities
• Cross-border services may require careful treatment

Businesses operating in both countries need clean accounting records to avoid confusion and duplication.

Common VAT Mistakes to Avoid

Some of the most frequent issues we see include:

• Late VAT registration
• Charging VAT incorrectly
• Poor record-keeping
• Mixing VAT-registered and non-registered income
• Missing filing deadlines

Penalties can apply even for unintentional errors.

How Good Bookkeeping Simplifies VAT

VAT compliance becomes significantly easier when:

• Transactions are recorded monthly
• VAT codes are applied correctly
• Bank reconciliations are up to date
• Reports are reviewed before submission

This is why VAT should never be treated as an annual task — it requires ongoing attention.

How A2Z Accounting Dubai Supports VAT Compliance

At A2Z Accounting Dubai, we provide:

• VAT registration support
• Ongoing VAT return preparation and filing
• VAT-compliant bookkeeping
• Advice on VAT treatment of transactions
• Support during FTA queries and reviews

Our focus is not just filing — but ensuring VAT works smoothly within your broader accounting framework.

Conclusion

VAT in the UAE is manageable, predictable, and far simpler than many international systems — provided it is handled correctly from the start.

By understanding:

• When to register
• How to charge VAT correctly
• How to maintain proper records

Business owners can avoid penalties, reclaim VAT where permitted, and stay focused on growth.

If you are unsure about your VAT obligations or want professional support, early guidance can save time, money, and stress.