1. Statutory Legal Architecture
Value Added Tax was introduced across the United Arab Emirates on 1 January 2018 under Federal Decree-Law No. 8 of 2017 on Value Added Tax. It is an indirect consumption tax levied at each stage of the supply chain, with registered businesses collecting the tax on behalf of the Federal Tax Authority (FTA).
The standard statutory VAT rate is five percent (5%) applied to the majority of goods and commercial services, while specific categories are classified as zero-rated (0%) or VAT-exempt.
2. Registration Thresholds
| Registration Classification | Revenue Threshold (AED) | Statutory Criteria |
|---|---|---|
| Mandatory Registration | AED 375,000 | Taxable supplies and imports exceeded AED 375,000 in the past 12 months, or are forecasted to exceed AED 375,000 in the next 30 days. Must register within 20 business days. |
| Voluntary Registration | AED 187,500 | Taxable supplies or taxable capital/operating expenses exceeded AED 187,500 over the past 12 months. Allows early recovery of input VAT. |
| Exemption from Registration | Below AED 187,500 | Businesses below the voluntary threshold cannot register for VAT and do not charge VAT on invoices. |
3. Zero-Rated Supplies vs Exempt Supplies
Understanding the legal distinction between 0% zero-rated supplies and VAT-exempt supplies is vital for correct tax accounting and input VAT recovery:
- Zero-Rated Supplies (0% Tax): Tax is charged at 0%, but the registered business is entitled to reclaim input VAT incurred on related business expenses. Key zero-rated items include:
- Exports of goods and cross-border international services outside the implementing states.
- International passenger transport (including airline passenger tickets under Article 45(2)).
- First supply of newly constructed residential real estate within 3 years of completion.
- Basic healthcare services and preventive medicine.
- Educational services provided by accredited institutions.
- Exempt Supplies (No VAT): No tax is charged on the invoice, but the business cannot recover input VAT on related costs. Key exempt items include:
- Residential property leases (residential rent).
- Bare land sales and long-term land leases.
- Financial services with implicit profit margins (e.g. loans, life insurance policies, foreign exchange margins).
- Local public passenger transport (buses, metro, public taxis).
4. Quarterly Filing and Settlement on EmaraTax
Once registered, the FTA assigns each taxable person a standard tax period—typically a quarterly calendar period (every 3 months). Returns must be filed and taxes paid via EmaraTax no later than the 28th day following the end of the tax period.
Related Tools & Calculators
Perform instant tax additions and net extractions: