VAT in the UAE in 2026: a 5% rate, registration, refunds, for business

What VAT is in the UAE and how many percent it is

VAT (Value Added Tax) is an indirect consumption tax paid by the end buyer, and collected and remitted to the state by business. The UAE long remained a tax-free country, but on January 1, 2018 introduced VAT at a single rate. To the question of how many percent UAE VAT is, the answer is simple: the standard rate is 5%. This is one of the world's lowest VAT rates - for comparison, in most European countries it's 19-25%.

The tax's logic is as follows: at every stage of the chain (manufacturer - wholesaler - retail) business adds 5% to the price of its goods or services, collects this VAT from the buyer (output VAT), but at the same time deducts the VAT it itself paid to suppliers (input VAT). The difference is remitted to the budget. As a result, the whole burden falls on the end consumer, while business acts as the state's "tax agent".

The tax is administered by the Federal Tax Authority (FTA). It's exactly this that keeps the payer registry, accepts returns and refunds. It's important to understand: VAT in Dubai, Abu Dhabi, Sharjah, and the other emirates is unified - it's a federal tax, the rate and rules are the same across the whole country. There's no separate "Dubai tax" of any kind.

Despite the modest 5%, VAT has become a serious budget replenishment source and part of the UAE's broad tax reform - together withthe 9% corporate tax, which came into effect separately. There's still no income tax on individuals' salaries in the country.

Three supply categories: 5%, 0%, and VAT exemption

The key to understanding VAT in the UAE is distinguishing three supply types. Both the rate and the right to deduct input tax depend on which category your goods or service falls into. These aren't the same thing, and confusion here costs dearly.

• The standard 5% rate- the vast majority of goods and services within the country: retail, restaurants, electronics, consulting, commercial property rental, freelancer services.
• The zero rate 0%- formally taxable supplies, but at a zero rate: exports outside Gulf countries, international transport, a number of sectors (some healthcare, education). The main advantage - at the zero rate business keeps the right to deduct input VAT.
• Exemption- supplies entirely taken out from under VAT: financial services with margin income, residential property rental and resale, local passenger transport. Here input VAT is NOT accepted for offset.

The difference between the zero rate and exemption isn't a formality, but a matter of money. A company on the zero rate gets its input VAT back from the budget, while a company with exempt supplies "eats" this VAT as an expense. We'll break down all the categories in more detail in separate sections below and bring them into a table.

Table: category - UAE VAT rate 2026

To keep the whole system in view, let's gather the main categories of goods and services and the VAT rate applicable to them. This is a working benchmark, but a specific case is always worth checking against FTA regulations, because there are nuances and exceptions within each category.

Note property: commercial is always taxed at 5%, while residential is either exempt or (the first sale of new housing) goes at the zero rate. This is a frequent source of mistakes, especially for those buying or renting out properties in Dubai. We detail the market topic in the articles onthe UAE's overall tax system.

VAT registration in the UAE: the 375,000 and 187,500 AED thresholds

Not every business is required to register for VAT - it all depends on taxable turnover. The UAE has two thresholds, and understanding the difference between them is critical, so as not to get a fine or, conversely, not register ahead of time.

• Mandatory registration - from 375,000 AED.If taxable turnover (sales plus imports) over the last 12 months exceeded 375,000 dirhams OR you expect to exceed this within the next 30 days, VAT registration is mandatory. 30 days are given to file the application, otherwise - a fixed fine of 10,000 AED.
• Voluntary registration - from 187,500 AED.If turnover or taxable expenses exceeded 187,500 dirhams, but didn't reach the mandatory threshold, business has the right to register voluntarily. This benefits startups and companies with large purchases: they get the right to get input VAT back even before reaching large revenue.

The thresholds are counted for a rolling 12-month period, not a calendar year. That is, total turnover needs constant tracking for any last 12 months. Registration goes online through the FTA's EmaraTax portal, and by the end a Tax Registration Number (TRN) is assigned, stated on all invoices.

For company groups, VAT group registration is possible - several related legal entities get one TRN and don't charge VAT on transactions between themselves. This is convenient for holding structures. If you're only planningopening a company in the UAE works, the VAT registration question is worth calculating in advance, at the jurisdiction-choice stage.

The zero rate (0%): exports and international transport

The zero rate isn't exemption, but a full taxable supply, just at a 0% rate. The difference is fundamental: a company working at the zero rate keeps the right to deduct and get back all the input VAT it paid its suppliers. That's why export-oriented business in the UAE feels very comfortable.

What's taxed at the 0% rate:

• Export of goods and servicesoutside the Gulf Cooperation Council (GCC) countries. Since 2026 the FTA has tightened document requirements: customs declarations and shipping documents are needed to confirm the zero rate on export.
• International transportof passengers and cargo, and services related to them.
• Supply of a number of aircraft and vessels, used in international transport.
• The first supply of new housingwithin three years of construction.
• Certain healthcare and education categories, investment precious metals (high-purity gold, silver, platinum).

For companies conducting foreign trade throughthe UAE's free zones, the zero rate on export is one of the key pluses. But exactly due to the 2026 tightening of paperwork, it's important to keep careful shipment records: during a tax audit, the absence of customs papers turns a "zero" deal into one taxed at 5%, and the additional assessment falls on the company.

VAT exemption: financial services and residential property

Exempt supplies are the third category, and the most treacherous. Business doesn't charge VAT on its sales, but also can't get back input VAT on its expenses. This "lost" tax turns into a hidden cost built into the price.

What's exempt from VAT in the UAE:

• Financial services with margin income.Exempt are financial services where income is formed through margin, not an explicit fee: interest on loans, margin financing, certain types of life insurance. But as soon as a service involves an explicit fee or charge - 5% is applied to it.
• Residential property.Housing rental and residential property resale (except the first sale of new housing) are exempt from VAT. So a tenant in Dubai pays no VAT on the housing rent.
• Local passenger transport- taxis, buses, the metro within the UAE.
• Bare land(with no buildings) - its sale is also exempt.

In 2026 an important amendment came into effect (Decree-Law No. 16/2025): a five-year limitation period was introduced for input VAT refund claims. This hits exempt activities the hardest - those already limited in deductions now need to watch the deadlines even more carefully. For mixed business (part of supplies taxed, part exempt), calculating the deductible VAT share is a separate and non-trivial task requiring competent accounting.

Input VAT for offset: how the deduction mechanism works

The heart of the VAT system is the input tax deduction mechanism. Without it, VAT would turn into a turnover tax at every stage, and prices would multiply. Let's break down how this works in practice.

Any VAT-paying company has two tax flows:

• Output VAT- 5% you charged and collected from your clients when selling goods and services.
• Input VAT- 5% you yourself paid suppliers when buying goods, raw materials, services, renting an office for business.

In the return you deduct input VAT from output. If output is more - you pay the difference to the budget. If input is more (for example, there was a large equipment purchase) - an overpayment arises, which can be refunded from the budget or carried forward to the next period.

But the right to deduct doesn't always exist. Input VAT is NOT accepted for offset if it relates to exempt supplies, and also for a number of "personal" expenses: client entertainment, some cars for employees' personal use. To claim a deduction, a correct tax invoice stating the supplier's TRN is mandatory. So paperwork culture in the UAE isn't bureaucracy, but direct money: no correct invoice - no deduction.

VAT returns: deadlines, periods, and the EmaraTax portal

Registered for VAT - meaning obligated to regularly file returns, even if turnover for the period was zero. All this is done online through the FTA's EmaraTax portal, in form VAT 201.

Filing frequency depends on the business's size:

• Quarterly- the standard period for companies with annual turnover below 150 million AED.
• Monthly- for large business with turnover from 150 million AED a year.
• The FTA has the right, at its discretion, to assign a different tax period to an individual business.

The deadline for filing the return and paying the tax is within 28 days after the tax period ends. If the 28th falls on a weekend or holiday, the deadline shifts to the nearest business day. The return reflects output VAT on sales, input VAT on purchases, and the final sum payable or refundable.

Being late and mistakes are punished with fines: for late filing, for non-payment, for wrong data. So many companies keep records in specialized software and engage accountants in advance. Separately worth noting: since July 2026 the UAE is introducing mandatory electronic invoicing (e-invoicing) for B2B and B2G transactions - this changes paperwork requirements for all VAT payers.

The VAT refund for tourists (Tax Free) at UAE airports

One of the most popular requests is the VAT refund for tourists in the UAE. Indeed, foreign tourists can get back part of the VAT paid on purchases made during a trip. The Tax Free scheme works officially and is administered through operator Planet (by agreement with the FTA).

How this works:

• A purchase at a participating store.When making a purchase, ask for a Tax Free receipt to be arranged - the seller must be connected to the refund scheme. A minimum purchase sum and a number of conditions apply (the goods are taken out of the country).
• Validation on departure.When flying out from the airport (or another exit point), the purchases and receipts are checked at special desks or the system's kiosks.
• Getting the refund.After confirmation, the tourist gets back 85% of the 5% VAT paid. The remaining 15% is held as the operator's service fee. The refund is possible in cash, to a card, or another way.

It's important to understand: the refund is available exactly to non-resident tourists and only for goods taken out of the country. Tax Free doesn't extend to services (hotels, restaurants, entertainment). Completely different refund mechanisms apply for UAE residents and for business, discussed below.

VAT refunds for business and foreign companies

Besides the tourist Tax Free, the UAE has separate VAT refund mechanisms for business - both for local and foreign companies.

The main scenarios:

• An overpayment for a VAT payer.If by the period's end input VAT exceeded output (for example, after large purchases or export activity at the zero rate), a refundable balance arises. It can either be returned as money through an application in EmaraTax, or carried forward and offset against future payments. Since 2026, five years are given for this from the end of the relevant tax period.
• Refunds for foreign businesses (Business Visitor Refund).Foreign companies not registered for VAT in the UAE can, under certain conditions, get back VAT paid on expenses in the country (business trips, exhibition participation). The condition - reciprocity: the company's country must provide a similar refund to business from the UAE.
• Special categories.Separate refund procedures apply for building new residential homes by UAE citizens, for foreign governments, international organizations, and diplomatic missions.

For export-oriented companies, it's exactly the input VAT refund that makes working through the UAE advantageous: you sell abroad at 0%, and take back all the VAT paid within the country. Properly built accounting here directly affects the business's working capital.

VAT in free zones and the mainland

A common misconception is that companies in UAE free zones are fully exempt from VAT. This isn't so. VAT is a federal tax, and it applies across the whole country's territory, including free zones. But there's an important nuance with so-called "designated zones".

How things stand:

• Ordinary free zones.Most free zones for VAT purposes are considered part of the UAE. Companies in them register, charge, and pay VAT under general rules - the same as mainland business.
• Designated zones.A separate list of zones that for VAT purposes are conditionally considered "outside the UAE". Supplies of goods within and between such zones, given conditions observed, may not be taxed with VAT. But this concerns exactly goods - services are usually taxed under general rules.
• Mainland.Mainland companies work under standard VAT rules with no special features.

VAT shouldn't be confused with corporate tax: free zones have corporate tax benefits (0% on qualifying income), but this is a completely different tax. On VAT a free zone isn't an "offshore". So whenchoosing a free zone for registering businessit's important to separately calculate the VAT consequences, especially if you trade goods and are interested in designated zone status.

VAT in the UAE's overall tax system: what's important to know

To see the full picture, it's important to place VAT in the context of the UAE's whole tax system. Many come to the country for "zero taxes" and are surprised to discover VAT and corporate tax. Let's dot the i's.

How the UAE's tax system is structured in 2026:

• Personal income tax - 0%.Salaries, individuals' income aren't taxed. This is still the main magnet for specialists and entrepreneurs.
• VAT - 5%.An indirect consumption tax we broke down in this guide. Paid by the end buyer, collected by business.
• Corporate tax - 9%on profit above 375,000 AED (since June 2023). 0% for qualifying income in free zones. This is a direct tax on company profit, not to be confused with VAT.
• No capital gains or inheritance taxfor individuals, no annual property tax.

VAT and corporate tax are two different taxes with different bases, rates, and returns. A company can be a payer of both at once. We keep the full map of the tax burden in the guide onUAE taxes, and details of the direct profit tax - in the article onUAE corporate tax. Current regulations and forms are always worth checking on the official portalthe UAE Ministry of Finance (mof.gov.ae).

What to pay attention to when working with VAT: an expert's view

Over years supporting companies in the UAE, we see business trip up not on the 5% rate itself, but on the details. Let's gather the main practical points that save clients money and nerves.

• Track the rolling threshold.Mandatory registration is tied not to the calendar year, but to any last 12 months. Many miss the moment of exceeding 375,000 AED and get a 10,000-dirham fine out of nowhere.
• Don't confuse the zero rate and exemption.At 0% you get back input VAT, at exemption - you lose it. For an exporter this is a difference in real money.
• Keep correct tax invoices.With no correct invoice with the supplier's TRN, the deduction won't go through. The document is money.
• Prepare for e-invoicing.Since July 2026, mandatory electronic invoicing is introduced for B2B and B2G - the accounting system needs adapting in advance.
• Don't let refund deadlines lapse.Since 2026, 5 years are given for the input VAT refund - but there's no point delaying with overpayments "hanging" in the budget.

The most frequent advice we give: put accounting on rails from day one, not when the first letter from the FTA arrives. VAT forgives a lot, but doesn't forgive disorder in documents.

Fines and liability for VAT violations

The FTA takes VAT rule compliance seriously, and the UAE's fine system is noticeable. Not knowing the rules doesn't exempt from liability, so it's important to understand the main risks in advance.

Typical violations and sanctions:

• Untimely registrationupon reaching the mandatory threshold - a fixed fine of 10,000 AED.
• Late return filing- a fine for the first violation and an increased one for repeated ones.
• Untimely tax payment- percentage penalties accruing for each period of delay.
• Return errors, tax understatement- fines tied to the underpayment sum.
• Missing or incorrectly arranged tax invoices- separate fines for each violation.
• Not keeping proper records- the FTA requires keeping documents for the established term (usually 5 years, longer for property).

The practical conclusion is simple: VAT in the UAE isn't a field where you can "sort it out later". Fines accumulate fast, and during a tax audit it's almost impossible to reconstruct missing documents retroactively. Competent record-keeping from the company's first working day is the cheapest insurance against problems with the FTA.