Guide
Banking and tax
VAT in the UAE: 5%, registration thresholds and returns
UAE VAT has a low rate and conventional mechanics. The problem is not the rate; it is the point at which you become liable, the confusion between zero-rating and exemption, and the widespread idea that a free zone company is not concerned. Here is what triggers the obligation, and what makes it expensive.
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5% Standard rate, in force since 2018
- Standard VAT rate
- 5%
- In force since 1 January 2018
- Mandatory registration threshold
- AED 375,000
- Taxable turnover over a rolling twelve months
- Filing deadline after the period
- 28 days
- Return and payment within the same period
Rate, threshold and deadline: working values being verified, dated September 2026. They describe a mechanism, not your file.
The short answer
VAT is 5% on most supplies made in the UAE. Registration becomes mandatory once taxable turnover crosses a threshold, assessed over a rolling twelve months and over the next thirty days. A free zone company is concerned like any other. Returns are quarterly by default, to be filed and paid within twenty-eight days, and a period with no activity still requires a return.
VAT and corporate tax are two independent regimes: being registered for one exempts you from nothing under the other, and their thresholds are not read the same way. Together with tax residence, they make up the guide to banking and tax in the United Arab Emirates.
Registration
The threshold is crossed sooner than you think
Two thresholds coexist. The mandatory threshold triggers registration as soon as taxable turnover over the past twelve months exceeds it — or as soon as you expect to exceed it within the next thirty days. That second limb is the one people forget: a contract signed at the start of the month can make registration mandatory before the first invoice.
The voluntary threshold, which is lower, lets you register before you are required to. It is a cash-flow decision: if you pay VAT on your local purchases and your sales are zero-rated, you recover VAT that you do not charge. Conversely, a company selling to local consumers rarely has any reason to register early.
What taxable turnover covers
It is not your total turnover. You add up standard-rated supplies, zero-rated supplies and certain supplies under the reverse charge. Exempt supplies and supplies made outside the UAE are left out. A company can therefore exceed the threshold without ever having charged VAT to anyone.
The four regimes
Zero-rated and exempt are not the same thing
It is the most misunderstood distinction in UAE VAT, and the one that decides your right to recover the VAT paid on your purchases.
| Regime | VAT charged to the client | Recovery of input VAT | Supplies concerned |
|---|---|---|---|
| Standard rate | 5% | Yes | Sales and services supplied in the UAE |
| Zero rate | 0% | Yes | Exports of goods outside the Gulf, international transport, first supply of a new residential property |
| Exempt | None | No | Residential letting after the first supply, bare land, local passenger transport, certain financial services |
| Out of scope | None | Not applicable | Supplies whose place of supply is abroad |
Scroll the table sideways to see every column.
Read in cash-flow terms, the difference is clear. A zero-rated business — an exporter, a services company whose clients are all abroad — recovers the VAT on its local purchases and is structurally in credit. An exempt business bears that same input VAT without being able to deduct it: it becomes a final cost, to be built into the selling price. When the same company does both, input VAT must be apportioned using a documented key — a classic source of reassessments, to be dealt with as soon as the accounts are set up.
Misconception
A free zone is not a designated zone
The statement “my company is in a free zone, so no VAT” is wrong three times over. A free zone is a licensing status; a designated zone for VAT purposes is a list set by Cabinet decision, open to revision, and not every free zone is on it. Even when a zone is designated, the special treatment covers certain supplies of goods within that zone, not services. And it never exempts the company from registering or filing. The list changes over time. We check your zone’s status when the question arises, rather than pointing you to an inventory that may have changed since it was last updated.
The filing cycle
From crossing the threshold to filing the return
Watch the threshold before you reach it
It is assessed on the rolling past twelve months, but also on the next thirty days. A signed contract can trigger the obligation before any payment comes in.
Apply for the registration number
It must appear on your invoices. Until it is issued, you cannot charge VAT: a gap to plan for with your clients.
Adapt your invoicing
Mandatory details, currency, rate applied, amount in dirhams, issue deadline. A non-compliant invoice costs your client their right to deduct.
Keep the purchase and sales records
The return is filled in from the accounts, not from bank statements. Every line, reverse charge included, must be supportable.
File and pay within twenty-eight days
Returns are quarterly by default, monthly above a turnover threshold. A period with no activity still requires a nil return, which remains mandatory.
Keep the records
For several years, longer for real estate transactions. An audit covers closed periods, and no document means no right to deduct.
In practice
The mistakes we see again and again
- Registering late. The next-thirty-days limb is ignored, and the obligation is established after the event, with a penalty.
- Treating an exempt supply as if it were zero-rated. Input VAT is wrongly recovered and adjusted at audit.
- Forgetting the reverse charge on services bought abroad. Software subscriptions, contractors, online advertising.
- Issuing non-compliant invoices. It is the client who loses their right to deduct, and the dispute comes back to you.
- Recovering VAT on excluded expenses. Entertainment, private use of a passenger car, certain staff benefits.
- Filing nothing for a period with no activity. The nil return is still due, and failing to file is penalised in itself.
- Not keeping the records. No invoice, no deduction.
None of these mistakes comes from bad faith. They share one cause: UAE VAT looks simple, so it is dealt with after the event. It is configured when the accounts are set up, and is hard to correct afterwards. The corporate tax and VAT calculator shows where you stand against the two thresholds.
Frequently asked questions about VAT in the UAE
At what turnover do I have to register for VAT?
Registration becomes mandatory when taxable turnover crosses the regulatory threshold, assessed on the past twelve months or on the next thirty days. A lower threshold allows voluntary registration, which mostly makes sense when you pay VAT on your purchases and charge little on your sales.
My company is in a free zone: is it outside the scope of VAT?
No. A free zone is not automatically a designated zone for VAT purposes, and the list of designated zones is set by Cabinet decision and revised. Even in a designated zone, the special treatment covers certain supplies of goods, not services.
What is the difference between zero-rated and exempt?
The zero rate is a VAT regime: you invoice at 0% and keep the right to recover the VAT paid on your purchases. Exemption takes the supply outside the right to deduct: you charge no VAT and you do not recover the VAT on the related purchases. Two regimes that look alike on the invoice and are opposites for cash flow.
Do I have to pay VAT on my subscriptions to foreign services?
In principle yes, through the reverse charge: the UAE taxable person declares the VAT on services bought from a foreign supplier themselves, and deducts it in the same return where they are entitled to. The operation is often cash-neutral, but it must appear. It is a very common omission.
Do I have to file even with no activity in the period?
Yes. A period with no transactions requires a nil return, within the same deadline as the others. Failing to file is penalised in itself, regardless of the amount due. It is one of the most frequent failures among dormant companies.
The rest of the tax guide
Tax
Corporate tax: the 9% regime
Tool
Corporate tax and VAT calculator
Structuring
Accounting and returns
Banking
Opening a bank account in Dubai
Independent advice
Check your VAT position before your next invoice
Threshold crossed or not, the rate that applies to your supplies, the reverse charge, your free zone’s status: these four points are checked in a single review of your file. Describe your business and we will tell you where you stand.