VAT and Sales Tax in United Arab Emirates

The United Arab Emirates introduced Value Added Tax at a 5% standard rate effective 1 January 2018, making it one of the lowest VAT rates among jurisdictions that operate a consumption tax. The legal basis is Federal Decree-Law No. 8 of 2017 on Value Added Tax, supplemented by Cabinet Decision No. 52 of 2017 (the Executive Regulations). The Federal Tax Authority (FTA) administers the framework through its EmaraTax digital portal at tax.gov.ae. VAT applies across the UAE's seven emirates uniformly; there is no emirate-level variation. The GCC Unified VAT Agreement underpins the framework and coordinates cross-border treatment with Saudi Arabia (15%), Bahrain (10%), and Oman (5%), while Kuwait and Qatar have not yet enacted VAT.

What is the standard VAT rate and which supplies does it cover?

The standard rate is 5% and applies to most commercial supplies of goods and services made in the UAE, unless a specific zero-rate or exemption applies [1]. The rate is applied to the taxable value of the supply, which is generally the consideration paid. Unlike many OECD jurisdictions operating rates of 19-25%, the UAE's 5% rate is deliberately low. VAT-registered suppliers must issue a tax invoice showing their Tax Registration Number (TRN), the date of supply, a description of goods or services, the amount exclusive of VAT, the VAT rate applied, and the VAT amount charged. Businesses engaged solely or primarily in zero-rated or exempt activities must understand the distinction carefully, because only zero-rated activity preserves the right to recover input VAT on related costs.

Which supplies are zero-rated or exempt?

Zero-rated supplies are subject to VAT at 0%, which means the supplier charges no VAT to the customer but retains the right to recover any input VAT incurred in making those supplies [1]. The principal zero-rated categories under Federal Decree-Law No. 8 of 2017 and its Executive Regulations are: (a) exports of goods to destinations outside the GCC implementing states; (b) international transportation of goods and passengers and related services; (c) supply of certain healthcare services and related goods by licensed providers; (d) supply of certain educational services by accredited institutions; (e) the first supply of newly completed residential buildings within three years of completion, enabling property developers to reclaim input VAT on construction; (f) supply of investment-grade gold, silver, and platinum of defined purity; (g) certain rescue and emergency services.

Exempt supplies carry no VAT charge and, critically, do not permit recovery of input VAT attributable to those activities [1]. The principal exempt categories are: residential leases and subsequent sales of residential property (after the first zero-rated supply); the supply of bare land; certain financial services where the fee is implicit in a margin or spread; and local passenger transport.

Who must register for VAT in the UAE?

A UAE-resident business must register for VAT when the value of its taxable supplies and imports exceeded AED 375,000 in the preceding twelve months, or when there are reasonable grounds to expect that threshold will be exceeded within the next thirty days [2]. The AED 375,000 figure translates to approximately AED 31,250 per month in average taxable turnover. Failure to register on time carries a mandatory penalty of AED 10,000 under the FTA's penalty schedule, and the FTA may back-date the registration to the date the threshold was first exceeded.

Voluntary registration is available to businesses whose taxable supplies, imports, or taxable expenses exceed AED 187,500 but have not yet reached AED 375,000 [2]. Voluntary registration is commonly chosen by B2B-facing businesses that wish to recover input VAT on start-up or operational costs. Non-resident businesses making taxable supplies in the UAE are required to register regardless of the value of those supplies; no threshold applies to non-residents.

Once registered, the standard filing period is quarterly. The FTA may assign monthly filing to larger businesses. Returns and payments are submitted through the EmaraTax portal at eservices.tax.gov.ae within twenty-eight days of the end of each tax period. Late filing and late payment each attract separate administrative penalties. Registered businesses must also maintain VAT records for at least five years (seven years for real estate).

How does the tourist VAT refund scheme work?

Visitors who are not UAE residents may claim a refund of VAT paid on eligible goods purchased in the UAE, provided the goods are taken out of the country [3]. Planet is the sole operator of the Tourist VAT Refund Scheme on behalf of the FTA. A tourist must spend a minimum of AED 250 at a registered retailer during a single visit to that store. The retailer submits the transaction through the Planet system at the point of sale after scanning the tourist's passport.

On departure, the tourist must validate the tax-free transaction at a Planet kiosk located at UAE airports, seaports, or land-border crossings within ninety days of the invoice date. The refund equals approximately 85% of the VAT paid: the scheme deducts 13% of the VAT amount plus a flat fee of AED 4.80 per transaction to cover Planet's operating costs. Refunds are paid in cash (maximum AED 35,000), to a credit or debit card (Visa, Mastercard, American Express, UnionPay, JCB), or to digital wallets such as WeChat Pay or AliPay. Cash refunds take around three minutes; card refunds are credited within nine calendar days.

What is the UAE e-invoicing mandate and when does it apply?

The UAE Ministry of Finance issued Ministerial Decisions No. 243 and 244 of 2025, establishing a phased e-invoicing mandate for VAT-registered businesses engaged in B2B and B2G transactions [4]. B2C transactions are outside the initial scope. Invoices must be issued in a structured digital format (XML conforming to Peppol PINT-AE or UBL standards) and transmitted through an FTA-accredited Service Provider (ASP) using the five-corner Peppol model before reaching the FTA's central platform. Unstructured formats such as PDF, scanned images, or email attachments do not qualify as e-invoices under the mandate.

The rollout timeline is as follows. A voluntary pilot programme opens in July 2026. Phase 1 applies from 1 January 2027 to businesses with annual revenue of AED 50 million or more; those businesses must appoint an accredited ASP by 30 October 2026. Phase 2 applies from 1 July 2027 and covers all remaining in-scope VAT-registered businesses. Penalties for non-compliance after the mandatory dates include AED 5,000 per month for delay in appointing an ASP, AED 100 per invoice for late transmission (capped at AED 5,000 per month), and AED 1,000 per day for failure to notify an ASP of a system failure [4]. Buyers at compliant suppliers who issue non-conforming invoices risk losing the right to recover input VAT on those purchases.

For a broader overview of the UAE tax environment, including corporate tax and free-zone considerations, see the United Arab Emirates country overview. Businesses operating across the GCC or internationally may also find value in consulting our UAE tax treaty relief page for cross-border input VAT considerations. The rules described above reflect legislation and FTA guidance in force as of June 2026; they can change. Consult a licensed UAE tax agent or VAT consultant registered with the FTA before making compliance or structuring decisions.