VAT in the UAE is a 5% consumption-based tax applied at every stage of the supply chain, from raw materials to retail shelves. It’s not a tax on profit or income, and it doesn’t reduce your margins if handled right. It’s ultimately paid by the final consumer. Even if you’re not “paying” VAT as a business, you are responsible for collecting, reporting, and filing it. And that’s where VAT compliance in the UAE comes into play.  

Understanding the types of supplies is key to staying VAT compliant. Standard-Rated (5%) Most goods and services fall into this category, including retail sales, professional services, utilities, imported goods, and commercial property rentals. Businesses must: 

• Charge 5% VAT on sales 

• Reclaim VAT paid on business expenses (input VAT) 

Zero-Rated (0%) 

Zero-rated supplies are taxable at 0%, meaning businesses don’t charge VAT on these transactions but can still reclaim input VAT on related purchases.  Zero-rated means VAT applies at 0%, so no VAT is charged, but businesses can still recover input VAT. Common zero-rated supplies in VAT in the UAE include 

• Exports outside the GCC 

• International transport 

• First supply of residential properties (within 3 years) 

• Education and healthcare (approved providers) 

• Crude oil, gas, and 99% pure investment-grade metals 

Exempt Supplies 

No VAT is charged, and businesses cannot recover input VAT. These include: 

• Local passenger transport 

• Certain financial services (like interest) 

• Sale or lease of second-hand residential property 

• Bare land 

Once registered, your business gets a TRN (Tax Registration Number) and must fully comply with VAT obligations including invoicing, filing returns, and maintaining detailed records for 5 years.  

Filing Your VAT Returns 

VAT returns must be filed via the EmaraTax portal either: 

• Monthly: If your annual turnover exceeds AED 150 million 

• Quarterly: If below AED 150 million 

Returns must include: 

• Sales and purchase records 

• VAT collected and paid 

• Input VAT adjustments 

Mess it up, and you're headed straight for fines and audit flags.  

How VAT Works Through the Supply Chain 

Say a retailer sells a luxury perfume bottle for AED 5,000 + AED 250 VAT. But before that: 

• A fragrance oil importer bought essential oils for AED 1,000 + 50 VAT 

• A manufacturer blended and bottled the perfume, buying oils and packaging for AED 2,000 + 100 VAT 

• A wholesaler purchased the finished product for AED 3,000 + 150 VAT 

• The retailer then bought it from the wholesaler for AED 4,000 + 200 VAT 

Each business: 

• Pays VAT on purchases (input) 

• Charges VAT on sales (output) 

• Reclaims input VAT, only remitting the VAT. 

The customer ends up paying AED 250 VAT and the supply chain stays tax neutral. But only if everyone maintains proper records and follows VAT in the UAE.  

The UAE’s Federal Tax Authority (FTA) enforces VAT compliance with strict penalties that apply to everything from late registration to sloppy record-keeping.  Below is an updated list of key violations and their consequences as of 2025: 

 With fines adding up fast, even small slip-ups can get expensive. Overlooking VAT rules doesn’t just invite penalties; it exposes your business to real financial risk. 

Kitaab doesn't just manage 5% tax; we ensure your business stays clean, compliant, and audit ready. At Kitaab, we help UAE businesses with the full spectrum of VAT responsibilities: 

• Charging VAT correctly and issuing FTA-compliant tax invoices 

• Preparing and filing monthly or quarterly VAT returns on time 

• Maintaining accurate, audit-proof records 

• Identifying and maximizing input VAT recovery 

• Staying up to date with the latest VAT laws, updates, and e-invoicing rules 

Whether you're registering for the first time or correcting past errors, we make VAT in the UAE simple, smooth, and stress-free. Talk to the Kitaab team and take the hassle out of VAT in the UAE.