Insights into VAT in UAE: Regulations, Exemptions & Recent Changes


In recent years, the United Arab Emirates has implemented quick and robust changes in the taxation regime. VAT in UAEis an essential element of the tax system, introduced on January 1, 2018, with a standard rate of 5%. The consumption-based tax charged on goods and services is implied at every stage of the supply chain, from production and distribution to end consumers.

In addition, VAT is expected to be one of UAE’s primary sources of revenue-generating tax regime in the coming years. However, VAT is imposed on taxable supplies, and businesses are expected to issue valid VAT invoices based on taxable supplies made involving details like name and address of the supplier, receiver, VAT registration number, description of goods and services quantity, and price applicable to the VAT rate.

Furthermore, businesses in the UAE must meet the criteria ofVAT registration in UAE if their annual income exceeds the minimum criterion, which is AED 375,000. With continuously updating taxation regulations, the UAE is likely to adopt e-invoices and enhance VAT rates over time to ensure businesses meet standard regulations.

Do you want to know more aboutVAT in UAE? This blog will highlight crucial aspects like What is VAT in UAE? Insights into VAT registration in UAE, and more factors to help businesses meet evolving VAT regulations effortlessly.

What is VAT in UAE?

Value-added tax (VAT) in UAE, introduced in 2018, is an indirect tax charged on the supply of goods and services. The Federal Tax Authority (FTA) is responsible for implementing and collecting VAT in UAE.According to media reports, the average revenue distributed at the state level in UAE for VAT has been around AED 95.4 billion since the implementation date.

As mentioned above, for businesses that exceed the annual income of around AED 375,000 on taxable supplies, applying for VAT registration in UAEis mandatory. Meanwhile, companies with a yearly turnover above AED 187500 or below AED 375000 can register for VAT. In addition, VAT-registered businesses collect tax on behalf of the government, balances against the tax paid, and they need to file VAT returns with the FTA on a monthly or quarterly basis, depending on their turnover.

However, the UAE’s VAT system includes exemptions for specific supplies like residential properties, undeveloped lands, and specific financial services. Zero-rate supplies like exports and international transport do not apply to VAT regulations. This is why businesses need to maintain an accurate financial record, calculate VAT liability, and ensure they meet VAT compliance to prevent paying penalties. Connect with our VAT consultants for detailed guidance on creating a hassle-free financial record.

Lastly, the Value-added tax plays an important role in the UAE’s revenue generation system. It supports the government in bifurcating income sources while sustaining the country’s high cost of living standards.

Insights into VAT Registration in UAE

The VAT registration process in the UAE is compulsory for individuals and enterprises that meet specific criteria. As per the UAE’s VAT Law, an individual who resides in the UAE or an implementing state must register if his or her total value of overall supplies exceeds AED 375,000 within one year.

Ensure that the registration is done within 30 days of meeting the criteria. Additionally, the UAE allows individuals to take up voluntary registration if the total value of their supplies or expenses is subject to tax exceeding AED 187,500 in the previous year.

Furthermore, determining the date of supply is extremely important to meet with VAT compliance. For instance, considering goods, the date of supply can be regarded as when the goods were transferred or when receivers took possession. On the other hand, for services – the date of supply can be considered when the service is completed or delivered when payment is received, or when the tax invoice was issued.

An Overview of VAT in UAE

While the standard VAT rate in the UAE is 5%, specific goods and services are subject to 0% or exempt from VAT, including exports outside the GCC member, international transportation, crude oil, natural gas supply, and more. To help you gain a complete understanding of the value-added tax regime in the UAE, we are listing below a few factors.

Value-Added Tax in UAE’s Free Zones

Certain goods transactions carried out between companies in UAE Designated Free Zones might not be subject to VAT regulations. However, VAT applies to all tax-registered companies, even Free Zones.

However, if the UAE Cabinet declares a specific Free Zone as a Designated Zone, it will be taxed as an area outside the UAE. And the supply between these designated zones is often tax-free. Contact our experts to gain more details about VAT eligibility for free zone areas.

Exemptions of Valued-Added Tax in UAE

VAT exemptions are applied to specific financial services and residential real estate supplies. Often, transactions made for bare land and domestic passenger transport fall under the exemption factor of the VAT application.

In addition, transactions carried out for goods between companies established in the UAE’s Designate Zones are not subject to VAT. Let’s take a closer look at the goods and services that are exempt from the UAE’s VAT regulations.

VAT Exempted Goods and Services in UAE

  • Financial Services – Banking, Insurance, Investment services
  • Bare Land
  • Local Passenger Transport
  • Residential Rent
  • Certain Educational Services
  • Certain Healthcare Services

VAT Zero-rated Goods and Services in UAE

  • International transportation – Goods and Passengers
  • Exports of goods and services
  • Educational services, supplies, and equipment
  • Investment-based precious metals
  • First supply of residential building within three years of completion
  • And more

Recent Changes in Valued-added Tax in UAE

UAE has recently made essential changes to streamline VAT regulations and tax regime. By aligning UAE’s efforts to improve transparency and decision-making for income and foreign tax, the Financial Accounting Standard Board (FASB) has now established amendments to enhance income tax regulations.

In addition, these amendments make it mandatory for enterprises to disclose their income taxes to individual jurisdictions, income tax on foreign earnings (if applicable), income statement amounts, and more. This amendment strives to offer clarity on enterprises’ tax position, making it easy for stakeholders to make informed decisions.

Furthermore, the UAE has implemented changes in pharmaceutical pricing and reimbursement strategies. These changes include the transition from External Reference Pricing (ERP) to Value-Based Pricing (VBP), expedition price reviews, and price adjustments for exchange fluctuations.

Additionally, UAE’s reimbursement regulations aim to ensure that patients have access to affordable, high-quality pharmaceutical products and maintain the financial sustainability of the healthcare system. These changes indicate the UAE’s commitment to enhancing taxation and the healthcare system for more efficient and responsive policies focused on meeting the needs of UAE residents.

Let’s have a better understanding of other VAT changes made by the government for your better understanding.

Insights into VAT in UAE: Regulations, Exemptions & Recent Changes

Final Thoughts

UAE is known for its tax-friendly business environment and transparent financial regulations that enhance efficiency throughout the country’s varied operations. However, to foster economic growth and development in the country, the government has introduced a range of tax regime changes, clarified VAT in UAE and more.

If you want to access more details such as what is VAT in UAE? Or understand its rules, exemption and similar factors to maintain an error-free financial record, then contact our VAT consultants today!

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