The short version
- Register when taxable supplies and imports pass AED 375,000 in 12 months; voluntary from AED 187,500. Apply within 30 days.
- Standard rate 5%. Zero-rated sales count toward the threshold; exempt sales do not.
- Software, ads and services bought from suppliers abroad for your UAE business fall under the reverse charge: you declare the 5% yourself.
- File the VAT 201 on EmaraTax and pay by the 28th day after the quarter ends.
- Penalties: AED 10,000 late registration, AED 1,000 late return, late payment at 14% per annum from 14 April 2026.
- Keep VAT records 5 years (15 for real estate). Issue a full tax invoice within 14 days; a simplified one on the day of supply.
A UAE small business must register for VAT once taxable supplies and imports exceed AED 375,000 over 12 months or the coming 30 days, charge 5% on standard-rated sales, self-account for VAT on imported services, and file a VAT 201 on EmaraTax by the 28th day after each quarter. Late filing costs AED 1,000; late payment 14% per annum.
VAT has applied in the UAE since 1 January 2018 (u.ae, 30 March 2026) under Federal Decree-Law No. 8 of 2017, amended by Decree-Law No. 18 of 2022 from 1 January 2023 (FTA consolidated text) and again by Decree-Law No. 16 of 2025 from 1 January 2026 (Ministry of Finance, 3 December 2025). VAT and excise brought in AED 46 billion in 2025, against AED 41 billion in 2024, and the FTA completed 98,000 VAT registration applications that year (FTA, 29 June 2026).
Do you have to register for VAT in the UAE?
You must register when taxable supplies and imports exceeded AED 375,000 (Executive Regulation, Article 7; FTA, September 2025) over the previous 12 months, or when you expect to exceed it in the next 30 days. Below that, you may register voluntarily once taxable supplies, imports or taxable expenses pass AED 187,500 (Executive Regulation, Article 8). The FTA's registration page confirms both tests: the previous 12 months or the next 30 days (FTA, 6 April 2026). The test is per person, but related businesses that have artificially split one activity across several licences are added together, and each must then register (Decree-Law, Article 19(4); Executive Regulation, Article 13).
The threshold does not apply to foreign businesses (FTA, April 2026): a non-resident registers from the first dirham of sales to UAE customers who cannot account for the VAT themselves, such as consumers or unregistered businesses (Decree-Law, Article 13(2)); sales only to VAT-registered UAE businesses fall under the reverse charge instead and create no registration duty. You must apply within 30 days of being required to register (Executive Regulation, Article 7(2)). And a late registrant must pay VAT on all taxable supplies and imports made from the date the registration should have taken effect, which the FTA backdates (Executive Regulation, Article 7(3), (4) and (7)): 5% out of your own margin.
Registration is done on EmaraTax. The FTA estimates 45 minutes to complete the form and a decision within 20 business days of a complete application (FTA, 19 August 2026), with the trade licence, the Emirates ID or passport of owners and signatories, and a declaration of taxable supplies. You receive a Tax Registration Number (TRN). Registration takes effect from the first day of the month after the month in which you became required to register (Executive Regulation, Article 7(4)), or from the date you expected to cross the threshold (Article 7(5)); a voluntary registration runs from the first day of the month after you apply (Article 8(2)). VAT is due on supplies from that date even if the TRN arrives weeks later.
Do freelancers and free zone companies pay VAT?
Yes, under the same thresholds. The Decree-Law defines a Business as any regular, independent activity by any person, including professional, vocational and service activities (Decree-Law, Article 1). A designer or consultant on a freelance permit is therefore a business for VAT. Exports of services to clients abroad are typically zero-rated under Article 45, but zero-rated supplies remain taxable supplies and count toward the AED 375,000 (Decree-Law, Articles 1 and 19). A freelancer whose supplies are all zero-rated may instead ask the FTA for an exception from registration (Decree-Law, Article 15; Executive Regulation, Article 16), giving up input tax recovery and the returns, and must notify the FTA within 10 business days of any standard-rated supply.
A free zone licence changes nothing by default: a free zone that is not a Designated Zone is treated like any other part of the UAE (FTA guide VATGDZ1, July 2018). Even inside a Designated Zone, businesses must register, report and account for VAT under the normal rules (FTA, July 2018); the special treatment concerns certain supplies and transfers of goods: goods sold within a Designated Zone for resale or manufacture, and goods moved between Designated Zones (Executive Regulation, Article 51), while services within Designated Zones are taxed like services anywhere in the UAE (FTA, July 2018).
What is taxed at 5%, what is zero-rated and what is exempt?
Every supply made in the UAE falls into one of three boxes; supplies outside the scope of UAE VAT, such as goods sold within a Designated Zone for resale or a business transferred as a going concern (Decree-Law, Articles 7(2) and 50), sit in none of them and are not reported on the VAT 201. The standard rate of 5% applies to any supply or import not placed elsewhere (Decree-Law, Article 3). Article 45 zero-rates exports outside the Implementing States, international transport, the first supply of a residential building within 3 years of completion, and certain education and preventive and basic healthcare services (Decree-Law, Article 45). Article 46 exempts specified financial services, residential buildings other than those zero-rated, bare land and local passenger transport (Decree-Law, Article 46).
| Category | Typical examples | VAT you charge | Input VAT on costs | Counts toward AED 375,000? |
|---|---|---|---|---|
| Standard-rated (Art. 3) | Most goods and services sold in the UAE: trading, consulting, software, commercial rent | 5% | Recoverable | Yes |
| Zero-rated (Art. 45) | Exports, international transport, first supply of a new home within 3 years, certain education and healthcare | 0%, shown on the invoice | Recoverable | Yes |
| Exempt (Art. 46) | Specified financial services, residential leases, bare land, local passenger transport | None | Not recoverable | No |
Both zero-rated and exempt mean no VAT on the invoice, but only a zero-rated supply is taxable: it counts toward the threshold and keeps input tax recoverable.
How does the reverse charge work on imports and foreign services?
The reverse charge makes you, the UAE buyer, account for VAT instead of the foreign supplier. Under Article 48(1) of the Decree-Law, a taxable person importing concerned goods or services for the business is treated as supplying them to himself and is responsible for the tax. The Executive Regulation extends this to any supply whose place of supply is the UAE from a supplier with no place of residence in the UAE who does not charge VAT (Executive Regulation, Article 48(3)-(4)), declared in the return for the period of supply; a hotel, restaurant or event abroad is outside UAE VAT and is not reverse-charged.
This covers the bills that arrive with no VAT line: cloud software, online advertising, a consultant abroad. On each you calculate 5%, report it in the reverse-charge box of the VAT 201 and, where the purchase serves taxable supplies, recover the same amount as input tax in the same return. The cash effect is usually nil; the entry is mandatory. On imports of goods, skipping it costs 50% of the unpaid or undeclared tax (Cabinet Decision 40/2017 as amended, Table 1 row 15; MoF, November 2025).
How and when do you file and pay the VAT 201 on EmaraTax?
The standard tax period is three calendar months (Executive Regulation, Article 62(1)); filing is quarterly below AED 150 million of annual turnover and monthly at AED 150 million or more (u.ae, 30 March 2026). The return must reach the FTA no later than the 28th day following the end of the tax period, with payment due by the same date (Executive Regulation, Article 64(1) and (3)). When the 28th is a weekend or national holiday, the deadline moves to the next working day; the form is the VAT 201 (FTA, 'Filing returns in 4 steps').
The return shows, at minimum, standard-rated supplies and output tax, zero-rated supplies, exempt supplies, reverse-charge supplies, recoverable input tax and the net payable or refundable (Executive Regulation, Article 64(5)). Our VAT 201 on EmaraTax walkthrough shows each screen; the sequence for a quarter is:
- Close the quarter: a tax code and emirate on every sales line; a TRN or reverse-charge flag on every purchase.
- Reconcile: output tax equals 5% of standard-rated sales; input tax matches supplier invoices.
- Log in to EmaraTax with UAE PASS, which FTA services require (FTA EmaraTax FAQ, May 2024), and open the VAT 201.
- Enter the boxes; the portal computes the net.
- Submit, then pay so that the money reaches the FTA by the 28th (Executive Regulation, Article 64(3)), by GIBAN bank transfer with the unique payment reference, or by Visa or Mastercard through MagnatiPay; eDirham is no longer accepted (FTA, May 2024). A bank transfer needs a business day or two to clear, so do not start it on the 28th. Cards carry a 0.68% service charge plus VAT (FTA EmaraTax FAQ, May 2024).
- Archive the return and payment confirmation.
Worked example (illustration): one quarter for a Dubai trading company
Standard-rated UAE sales of AED 300,000: output tax AED 15,000 at 5%. UAE purchases of AED 120,000: input tax AED 6,000. A foreign software subscription of AED 20,000 arrives without VAT: the company declares AED 1,000 of reverse-charge output tax and recovers the same AED 1,000 as input tax.
Output tax 15,000 + 1,000 = AED 16,000. Input tax 6,000 + 1,000 = AED 7,000. Net payable: AED 9,000 by the 28th day after the quarter ends.
Paid one month late, the charge is 14% per annum for one month, roughly AED 105 (9,000 x 14% / 12), plus AED 1,000 if the return was also late.
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What are the VAT penalties in 2026?
The schedule is Cabinet Decision No. 40 of 2017, amended by Cabinet Decisions No. 49 of 2021 (from 28 June 2021), No. 108 of 2021 (from 1 January 2022) and No. 129 of 2025, effective 14 April 2026 (MoF consolidated text, November 2025). The 2026 changes: late payment now costs 14% per annum on the unsettled tax, for each month or part of a month, from the day after the due date (Table 1 row 9), replacing the old 2% immediate and 4% monthly penalties capped at 300% (GFLO Law, 14 May 2026); the incorrect-return penalty fell to AED 500 from AED 1,000 the first time and AED 2,000 on repeat (Cabinet Decision 49/2021, Table 1 row 10); a voluntary disclosure now costs 1% per month instead of 5% to 40% of the tax difference depending on the year (row 11); and an error the FTA finds first costs 15% plus 1% per month instead of 50% plus 4% per month (row 12).
| Violation | Penalty |
|---|---|
| Not applying to register on time | AED 10,000, plus VAT on every supply made from the backdated effective date of registration |
| Late deregistration application | AED 1,000 per month, capped at AED 10,000 |
| Late VAT return | AED 1,000 first time; AED 2,000 if repeated within 24 months |
| Late payment (from 14 April 2026) | 14% per annum, charged monthly on the unpaid tax |
| Incorrect return | AED 500; waived if corrected in time or disclosed with no tax difference |
| Voluntary disclosure of an error | 1% per month on the tax difference |
| Error found by the FTA before you disclose | Fixed 15% of the tax difference, plus 1% per month |
| Not accounting for VAT on imported goods | 50% of the unpaid or undeclared tax |
| Not keeping required records | AED 10,000 per violation; AED 20,000 on repeat within 24 months |
| Prices displayed without VAT | AED 5,000 |
| Not issuing a tax invoice or credit note | AED 2,500 per detected case |
A voluntary disclosure is always cheaper than an audit finding: 1% per month against a fixed 15% plus the same 1% per month.
What invoices and records must a small business keep, and for how long?
A registrant issues a full tax invoice within 14 days of the date of supply (Decree-Law, Article 67(1)); a simplified tax invoice must be issued on the date of supply itself (Executive Regulation, Article 59(13)). A simplified tax invoice is allowed when the customer is not registered, or when the customer is a registrant and the consideration does not exceed AED 10,000 (Executive Regulation, Article 59(5)). Consumer prices must be displayed inclusive of VAT, or the AED 5,000 penalty above applies.
Records are kept for 5 years following the tax period they relate to, and real estate records for 7 years from the end of the calendar year the document was created (Cabinet Decision 74/2023, Article 3, effective 1 August 2023), extended by 4 years while a dispute or audit is open and, since Cabinet Decision 17/2026 took effect on 1 April 2026 (BDO, 15 April 2026), by 2 years while a refund claim is pending with the FTA (MoF, 1 April 2026). The VAT Executive Regulation goes further for property: records related to a real estate must be held for 15 years after the end of the tax period (Executive Regulation, Article 71(2)).
The Regulation was amended by Cabinet Decision No. 100 of 2024, effective 15 November 2024, and Cabinet Decision No. 100 of 2025, effective 29 September 2025 (FTA, September 2025), and again by Cabinet Decision No. 149 of 2026, announced on 8 September 2026 (MoF), which among other things will restrict input tax recovery on cash payments above a threshold the Minister of Finance is to set. The 2024 decision made input tax on employee health insurance recoverable for staff and their family members up to a spouse and three children younger than eighteen (Executive Regulation, Article 53). If your tax codes still block insurance VAT, fix them.
Does e-invoicing change your VAT obligations in 2026-2027?
Not yet for most small businesses. Two Ministerial Decisions of 29 September 2025 set the timeline below; for businesses below AED 50,000,000 of revenue, an e-invoicing service provider (ASP) must be appointed by 31 March 2027 and the system live from 1 July 2027 (MoF, 29 September 2025). Cabinet Resolution No. 106 of 2025 sets the fines: AED 5,000 per month for failing to implement the system and AED 100 per e-invoice not issued on time, capped at AED 5,000 per month (MoF, 8 December 2025).
| Date | What happens | Who |
|---|---|---|
| 1 July 2026 | Pilot begins | Selected participants |
| 30 October 2026 (moved from 31 July; MoF, 10 May 2026) | Deadline to appoint an ASP | Revenue of AED 50,000,000 or more |
| 1 January 2027 | E-invoicing live | Revenue of AED 50,000,000 or more |
| 31 March 2027 | Deadline to appoint an ASP | Revenue below AED 50,000,000 |
| 1 July 2027 | E-invoicing live | Revenue below AED 50,000,000 |
| 1 October 2027 | E-invoicing live | Government entities |
Your rate, return and deadlines do not change. Every date and fine is in our e-invoicing dates and penalties guide; the Xrero team can be asked about timelines on the e-invoicing page.
Can you deregister, and what should your accounting software do for VAT?
You must apply to deregister when the business stops making taxable supplies, or when its 12-month taxable supplies fall below the voluntary threshold of AED 187,500 and you do not expect supplies or taxable expenses to pass it again within 30 days (Decree-Law, Article 21); you may choose to deregister when they fall below AED 375,000 but stay above AED 187,500 (Decree-Law, Article 22). Two further rules apply. A voluntary registrant may not apply for deregistration within 12 months of registering (Decree-Law, Article 23), and once a deregistration event occurs the application must be filed within 20 business days (Executive Regulation, Article 14(1)); missing that window costs AED 1,000 a month, up to AED 10,000 (Cabinet Decision 40/2017 as amended, Table 1 row 4). Until the FTA approves, you keep filing and paying.
Three habits cause avoidable penalties: a spreadsheet that does not match the invoices, a return built on the night of the 28th, and a foreign bill nobody flagged. Accounting software earns its fee on VAT if it puts a tax code and emirate on every sales line, flags purchases from suppliers with no TRN, totals the VAT 201 boxes from the ledger, warns before the 28th, and keeps an audit trail for five years. Xrero's accounting module prepares the VAT return figures ready to file on EmaraTax, with an audit trail on every entry and an Arabic and English interface, at AED 99 per user per month, a one-time setup from AED 2,999, a 15-day trial included and a 30-day money-back guarantee. Ask any vendor to show live how a reverse-charge purchase flows into the return.
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Frequently asked questions
Do I need to register for VAT in the UAE if my turnover is under AED 375,000?
No, not yet. Registration is mandatory only when taxable supplies and imports in the previous 12 months exceed AED 375,000, or you expect to exceed it in the next 30 days. Between AED 187,500 and AED 375,000 you may register voluntarily. Re-test the 12-month figure monthly; the 30-day clock to apply starts when you cross it.
Should I register for VAT voluntarily when my turnover is between AED 187,500 and AED 375,000?
Consider it if most customers are VAT-registered and you pay VAT on large purchases: you recover your input VAT, and they recover the 5% you charge. If you sell mainly to consumers, the 5% is a price rise they cannot recover, and you cannot deregister for 12 months.
Is a free zone company exempt from VAT, or does it still have to register and charge 5%?
No free zone licence exempts you from VAT. The FTA treats a free zone that is not a Designated Zone like any other part of the UAE, and even Designated Zone businesses must register, report and account for VAT under the normal rules. Services there are taxed as on the mainland.
What is the reverse charge and do I owe VAT on software, ads or services bought from suppliers outside the UAE?
Yes, if you are VAT-registered. When a supplier with no UAE place of residence does not charge VAT, Article 48 of the Decree-Law and Article 48 of the Executive Regulation make you account for the 5% in the return for that period; you normally recover the same amount as input tax in the same return. The cash effect is usually nil, but the entry must appear in the VAT 201.
What is the penalty for late VAT registration, late filing and late payment in 2026?
Late registration: AED 10,000. Late return: AED 1,000 the first time, AED 2,000 if repeated within 24 months. Late payment from 14 April 2026: 14% per annum on the unpaid tax for each month or part of a month from the day after the due date (Cabinet Decision No. 129 of 2025). Late registrants also owe VAT on supplies made from the backdated effective date of registration.
How long do I have to keep VAT records and invoices?
Five years after the end of the tax period they relate to (Cabinet Decision No. 74 of 2023); real estate records 7 years under the Tax Procedures rules and 15 years for VAT records related to real estate under Article 71 of the VAT Executive Regulation. Add 4 years during a dispute or audit, and 2 years while a refund claim is pending. Missing records cost AED 10,000, or AED 20,000 on repeat.
About the publisher: Xrero (xrero.com; in Arabic اكسريرو) is a Dubai-based business software company. Xrero is not Xero and is not connected to it. This article is general information drawn from FTA and Ministry of Finance publications, not advice on your specific case.
Page updated 12 September 2026.