The UAE introduced VAT in January 2018. The rate is 5% - one of the lowest in the world. But getting it wrong still has consequences.
Here is what you actually need to know as a small business owner.
Do You Need to Register for VAT?
VAT registration is mandatory once your business hits certain thresholds. It is voluntary below those thresholds but sometimes still worth doing.
Mandatory registration:
- Your taxable turnover in the last 12 months exceeds AED 375,000, or
- You expect your taxable turnover in the next 30 days to exceed AED 375,000
Voluntary registration:
- Your taxable turnover exceeds AED 187,500 (but is below AED 375,000)
If you are just starting out and nowhere near these thresholds, you do not need to register yet. Keep an eye on your revenue and register before you hit the mandatory threshold.
What Is Taxable Turnover?
Taxable turnover includes:
- All standard-rated supplies (sales at 5% VAT)
- Zero-rated supplies (certain exports, international services)
It does not include:
- Exempt supplies (certain financial services, residential property sales)
- Out-of-scope supplies
Most service businesses and trading companies count all their UAE revenue as taxable supplies.
How to Register for VAT
Registration is done through the Federal Tax Authority (FTA) online portal at tax.gov.ae.
Step 1: Create an FTA account Go to tax.gov.ae and register for an EmaraTax account using your Emirates ID or company details.
Step 2: Complete the registration form The online form asks for:
- Business details (trade licence number, business activity)
- Financial information (expected turnover, accounting period)
- Bank account details
- Details of business owners/directors
- Supporting documents
Step 3: Submit and wait for approval The FTA reviews applications and issues a Tax Registration Number (TRN) within 20 business days. In practice, it often comes through faster.
Step 4: Receive your TRN Your TRN (Tax Registration Number) is your VAT number. You must display it on all invoices once you are registered.
What Does VAT Registration Mean in Practice?
Once registered:
Charging VAT: You must add 5% VAT to all standard-rated invoices to UAE clients.
Reclaiming VAT: You can reclaim the VAT you pay on business expenses (input VAT). If you buy AED 1,000 of services and pay AED 50 VAT, you can reclaim that AED 50.
Filing returns: You must file VAT returns with the FTA, usually quarterly (some businesses file monthly).
Keeping records: You must keep VAT records for at least 5 years.
VAT Rates at a Glance
| Category | Rate | Examples |
|---|---|---|
| Standard rate | 5% | Most goods and services |
| Zero rate | 0% | Exports, international services, certain food |
| Exempt | N/A | Residential property, local passenger transport, certain financial services |
| Out of scope | N/A | Salary payments, outside-UAE supplies |
If your business primarily serves international clients (zero-rated), you may be in a VAT refund position - you pay VAT on your UAE expenses but charge 0% to clients. The FTA will refund the difference.
Filing VAT Returns
Most businesses file quarterly. Your accounting period is assigned by the FTA when you register.
What to file: A VAT return summarising:
- Output tax (VAT you charged to clients)
- Input tax (VAT you paid on expenses)
- Net VAT payable or refundable
Deadline: 28 days after the end of your tax period.
Payment: If you owe VAT, pay via e-Dirham, bank transfer, or through the EmaraTax portal.
Penalties for late filing: AED 1,000 for first offence, AED 2,000 for subsequent offences. Late payment penalties are 2-4% of the outstanding amount.
Invoicing Requirements
Once VAT registered, all your invoices to VAT-registered businesses must be Tax Invoices and include:
- The word “Tax Invoice” clearly stated
- Your TRN (Tax Registration Number)
- Invoice date and a unique sequential invoice number
- Your business name and address
- Client’s name and address (and their TRN if VAT registered)
- Description of goods/services
- Net amount (before VAT)
- VAT amount
- Total amount including VAT
For invoices under AED 10,000, a simplified tax invoice is allowed (fewer fields required).
Accounting Software for UAE VAT
You need accounting software that handles UAE VAT correctly. Options used by UAE SMEs:
- Zoho Books - popular with UAE SMEs, built-in UAE VAT compliance
- QuickBooks - widely used, UAE VAT add-on available
- Xero - good for businesses with international operations
- FreshBooks - simpler option for sole traders and consultants
- Wave - free option for very small businesses
Most accountants in the UAE are familiar with all of the above.
Do You Need an Accountant?
For a simple service business with few transactions, you can manage VAT yourself using accounting software and the FTA portal.
For businesses with:
- Complex supply chains
- Mix of zero-rated and standard-rated supplies
- Import/export transactions
- Multiple currencies
A UAE-based accountant is worth the cost. Budget AED 1,500-4,000/month for a part-time accounting service, or AED 5,000-15,000/year for VAT return preparation only.
Common Mistakes
Late registration. If you pass the AED 375,000 threshold and do not register, the FTA can back-date your registration and charge you for uncollected VAT plus penalties.
Not issuing tax invoices. Issuing invoices without your TRN once registered is a compliance failure. Update your invoice templates immediately after registration.
Mixing personal and business expenses. You can only reclaim VAT on genuine business expenses. Keep records clean.
Missing the filing deadline. Set calendar reminders 2 weeks before each filing deadline.
Corporate Tax vs VAT
UAE introduced a 9% corporate tax in June 2023 on business profits above AED 375,000.
VAT and corporate tax are separate. VAT is a transaction tax (charged to customers). Corporate tax is on your business profits.
You may need to deal with both. Most small businesses under the AED 375,000 profit threshold are exempt from corporate tax but still need to register if they have taxable supplies over the VAT threshold.