How VAT works in the UAE
VAT was introduced by Federal Decree-Law No. 8 of 2017 and has applied since 1 January 2018. The standard rate is 5%. There is no 6%, no 8%, and no discretionary rate — if someone quotes you one, they are guessing.
A registered business charges 5% on its taxable supplies (output tax), reclaims the 5% it paid its own suppliers (input tax), and pays the Federal Tax Authority the difference. The tax is ultimately borne by the final consumer; for a business in the middle, it should be cash-flow neutral — provided the arithmetic and the paperwork are right.
Adding VAT vs removing VAT — the mistake almost everyone makes
Adding VAT is easy: multiply the net amount by 1.05. AED 10,000 becomes AED 10,500.
Removing VAT is where people go wrong. If you have a VAT-inclusive total of AED 10,000, the VAT inside it is not AED 500. You have to divide by 1.05, not subtract 5%:
AED 10,000 ÷ 1.05 = AED 9,523.81 net
VAT inside = AED 10,000 − 9,523.81 = AED 476.19, not AED 500.
It is a difference of AED 23.81 on a single invoice. Across a year of them it is a reconciliation that will not balance, and an FTA return that is quietly wrong.
When you must register for VAT
- Mandatory: your taxable supplies exceeded AED 375,000 in the past 12 months, or you expect them to in the next 30 days.
- Voluntary: your taxable supplies or expenses exceed AED 187,500.
Registering late carries an administrative penalty of AED 10,000 — charged for being late, not for owing tax. Businesses that owed nothing at all have paid it.
Not everything is charged at 5%
Some supplies are zero-rated (charged at 0%, and you can still reclaim your input VAT) and a short list are exempt (no VAT charged, and you cannot reclaim input VAT). They sound similar and they are not: exempt is usually the worse of the two, because the VAT your suppliers charged you simply becomes a cost.
If you export services, hold residential property, or have ever been told you are “exempt” without being shown which article says so, read VAT exemption in the UAE: exempt vs zero-rated — it is the classification error we correct most often.
When the arithmetic stops being the hard part
Multiplying by 1.05 is not why businesses get penalised. They get penalised for registering late, for classifying a supply wrongly, for reclaiming input tax they were not entitled to, or for failing to apportion it when they make both taxable and exempt supplies. None of that is arithmetic, and none of it shows up until someone looks.
If you are unsure whether you should be registered, what rate applies to what you sell, or whether you have been reclaiming everything you are entitled to, our corporate tax and VAT team will review your position against the actual articles. If you are already compliant, that is the answer you will get.
This calculator does arithmetic, not advice. It is accurate for the standard 5% rate as at July 2026, but your own VAT position depends on what you sell and to whom. Treat the result as a figure to check, not a filing to rely on.