VAT Frequently Asked Questions (FAQ)

  • Exports of goods and services.
  • International transport of goods and passengers.
  • Certain means of transport, such as trains, trams, vessels, airplanes.
  • First sale/rent of residential buildings.
  • Aircraft or vessels designated for rescue and assistance by air or sea.
  • Certain investment precious metals.
  • Certain healthcare services and related goods and services.
  • Certain educational services and related goods & services.

  • Financial services including life insurance and reinsurance of life insurance as well as financial services that are not conducted for an explicit fee, discount, commission, rebate or similar type of consideration.
  • Residential buildings, other than the residential buildings which are specifically zero-rated.
  • Bare land.
  • Local passenger transport.

To check the validity of your TRN:

  • Log in to the FTA e-services portal (https://eservices.tax.gov.ae/en-us/login).
  • Click the TRN Verification tab at the top of the page.
  • Fill out the TRN field.
  • Click Validate. If your TRN is valid, you will see the message ”TRN is available in the system” at the bottom of the screen.

VAT is due on the goods and services purchased from abroad.

In case the recipient in the State is a registered person with the Federal Tax Authority for VAT purposes, VAT would be due on that import using a reverse charge mechanism.

In case the recipient in the State is a non-registered person for VAT purposes, VAT would be paid on import of goods from a place outside the GCC. Such VAT will typically be required to be paid before the goods are released to the person.

Businesses that satisfy certain requirements covered under the Legislation (such as having a place of residence in the UAE and being related/associated parties) will be able to register as a Tax group. For some businesses, Tax grouping will be a useful tool that would simplify accounting for VAT.

VAT shall be payable in addition to the custom duties paid by the importer of the goods and cannot be deducted. VAT shall be computed on the value that includes the customs duties.

Not necessarily. Some goods that are imported may be exempt from customs duties but subject to VAT.

Not necessarily. VAT and customs duty are two separate and independent levies. Even if customs duty is exempted on certain goods, imports can be subjected to VAT.

A taxable person will have the excess input tax recovered; he will be entitled to set this off against subsequent payment due to FTA.

VAT on expenses that were incurred by a business can be deducted in the following circumstances:

  • The business must be a taxable person (the end consumer cannot claim any input tax refund).
  • VAT should have been charged correctly (i.e. unduly charged VAT is not recoverable).
  • The business must hold documentation showing the VAT paid (e.g. valid tax invoice).
  • The goods or services acquired are used or intended to be used for making taxable supplies.
  • VAT input tax refund can be claimed only on the amount paid or intended to be paid before the expiration of 6 months after the agreed date for the payment of the supply.

A scheme will be introduced to allow a UAE national who is not registered for VAT to reclaim VAT paid on goods and services relating to constructing a new residence which will be privately used by the person and his family.

This will allow the recovery of VAT on such expenses as contractor’s services and building materials.

No, the head office and branches are considered to be a single taxable entity under VAT, provided that they are part of the same legal entity. This also applies for two branches with different commercial registrations.

The place of supply will determine whether a supply is made within the UAE (in which case the UAE VAT law will apply), or outside the UAE for VAT purposes.

For a supply of goods, the place of supply should be the location of goods when the supply takes place with special rules for certain categories of supplies (e.g. water and energy, cross border supplies).

For the supply of services, the place of supply should be where the supplier is established with special rules for certain categories of supplies (e.g. cross border supplies between businesses).

  • Taxable supply: When a supply takes place within the UAE, it falls within the scope of the UAE VAT, and will be considered taxable supply.
  • Out-of-scope supply: When a supply takes place outside the UAE, it is outside the scope of the UAE VAT.

Yes, the Federal Tax Authority (FTA) has issued guidelines to charge 5% VAT on sale or purchase of pre-owned goods such as vehicles and furniture. However, the amount on which VAT to be levied depends on when the item was purchased.

  • If the item was purchased before VAT was implemented (January 1st, 2018) and is sold any time after that, the VAT needs to be applied on the total selling price.
  • If an item was purchased and sold after VAT was implemented, then VAT needs to be applied on the profit margin. The VAT will be levied on the profit margin, since the seller of the pre-owned goods would have already been taxed at the time of purchase.
  • Pre-owned goods imported into UAE don’t qualify for this scheme. Imports of pre-owned goods are always subject to VAT on the total price.

Yes, online shopping is taxed at 5%.

VAT is calculated on the discounted price of the product.

For example, if the price of an item is 110 AED and the seller gives a discount of 10 AED, then the VAT on the product is 5% of 100 AED. The total cost of the product would be 105 AED (100 AED purchase price + 5 AED of VAT).

Loans are not subject to VAT under UAE, but the processing charges are subject to 5% VAT.

If goods are exported from the UAE to a non-GCC member state, then the place of supply is the UAE.

If goods are exported from the UAE to other GCC member states, the place of supply depends on the VAT registration status of the recipient:

  • If the recipient is registered under VAT, then the place of supply is the final destination of the goods (i.e., the recipient’s state).
  • If the recipient is not registered under VAT, then the place of supply depends on whether the supplier exceeds the VAT export threshold:
  • If the total amount of exports by the supplier is below the mandatory registration threshold in the destination member state, the place of supply is the UAE, and UAE VAT must be paid.
  • If the total amount of exports by the supplier is above the mandatory registration threshold in the destination member state, the place of supply is the destination member state, and VAT should be paid in that state.

If a supplier residing in a GCC state supplies services to a VAT-registered recipient in another GCC state, the place of supply is the recipient’s state.

If a supplier residing in a non-GCC state supplies services to a recipient in the UAE, then the place of supply is the UAE.

The date of supply for such goods is when the funds are collected from the machine.

The date of supply for deemed goods/services are whichever of the following applies: the date when the supply is made, the date when the usage of the goods/services is changed, or the date when the taxpayer applies for deregistration.

If all or part of the consideration is non-monetary, the value of supply will be calculated based on the monetary portion plus the fair market value of the non-monetary portion, excluding VAT.

If the total consideration is monetary, the value of supply will be the market value without VAT. It will also include other expenses and charges incurred by the supplier.

The following factors will reduce the value of supply:

  • Discounts and deductions given to customers.
  • Subsidies granted by other GCC member states to the supplier.

The value of supply should be converted to AED or the currency of the relevant state based upon the current exchange rate.

To avoid double taxation where second hand goods are acquired by a registered person from an unregistered person for the purpose of resale, the VAT-registered person will be able to account for VAT on sales of second hand goods with reference to the difference between the purchase price of the goods and the selling price of the goods (that is, the profit margin). The VAT which must be accounted for by the registered person will be included in the profit margin. Further details of the conditions to be met in order to apply this mechanism can be found in the Executive Regulations of the Federal Decree-Law No.(8) of 2017 on Value Added Tax.

If you are a VAT-registered person making supplies under the profit margin scheme, you need not report it to the FTA. You will have to report the sales and the corresponding VAT applied on the sales while filing your VAT return.

Zone that is treated as outside the UAE for tax purposes. The transfers of goods between designated zones are tax-free.

A Designated Zone must be a specific fenced area, in addition to meeting all of the following requirements:

  • It must adhere to strict control criteria laid out by the government.
  • The operator must keep detailed records of goods supplied.
  • Security and customs procedures must have been implemented to control the movement of goods and people within the designated zone.
  • Internal procedures should be followed related to keeping, storing and processing of goods within the area.
  • The operator of a Designated Zone must adhere to the procedures set out by the FTA.

If a Designated Zone changes the way it operates, or does not meet any of the criteria mentioned above, then it will be considered a part of the UAE for VAT purposes.

Certain goods supplied within the Designated Zones are not subject to VAT. For supplies of services, the VAT treatment in the Designated Zones is the same as in the rest of the UAE.

When goods move from a Designated Zone to the mainland UAE, it is considered to be import of goods into the UAE and import VAT must be paid by the importer.

There are certain situations where the importer has purchased goods that are subject to VAT from a Designated Zone and imports them into the mainland UAE. In such situations, the importer will be able to recover the import VAT paid in full. For an importer to be eligible for this tax recovery, the goods purchased in a Designated Zone must be the same goods imported into the UAE. The importer must also keep evidence of the purchase and the import in case the authority needs proof.

The supply of water and energy provided for consumption purposes by the water and energy authorities in a Designated Zone will be subject to VAT. This rule is applicable even if the water and energy supplied is used for the production of goods.

In certain cases, the supply of water and energy traded by businesses may be outside the scope of VAT.

As a general rule, the place of supply for real estate is the location of the real estate. As per this rule, the supply of real estate within a Designated Zone will be considered as a supply made outside the UAE. Therefore, VAT not be applicable on such supplies.

Any real estate that is not supplied through selling, leasing, or renting is considered to be real estate service. All real estate services—including but not limited to granting personal rights to use real estate, licensing for occupation of real estate, and the provision of contractual rights that can be exercised on real estate, including the right to use hotel accommodations or similar establishments—are taxable in the Designated Zones.

Generally, insurance (vehicle, medical, etc) will be taxable. Life insurance, however, will be treated as an exempt financial service.

It is expected that fee based financial services will be taxed but margin based products are likely to be exempt.

Supplies made by government entities will typically be subject to VAT. This will ensure that government entities are not unfairly advantaged as compared to private businesses.

Certain supplies made by government entities will, however, be excluded from the scope of VAT if they are not in competition with the private sector or where the entity is the sole provider of such supplies. It is likely certain government entities will be entitled to VAT refunds – this is designed to avoid budgeting issues and provide a level playing field between outsourced and insourced activities.

For the supplies provided for government entities, the treatment of such supplies shall depend on the same supply and not on the recipient of the supply. Therefore, if the supply is subject to the standard tax rate, the treatment would remain the same even if it is provided to a government entity.

  • Nursery education and pre-school education.
  • School education
  • Higher education provided by institutions owned by government or getting more than 50% of funding from the government.
  • Printed and digital reading material provided by the educational institution.
  • School trips related to curriculum.

  • Preventative healthcare and treatment services (Provided by a healthcare institution, Physician, nurse, dentist or pharmacy licensed by the Ministry of Health and Prevention or the competent authority)
  • Medications registered or approved by the Ministry of Health and Prevention
  • Medical equipment registered or approved by the Ministry of Health and Prevention

A conference is defined as a formal meeting which is held for no longer than 7 days and is attended by people with a shared interest.  An exhibition is defined as any event held for no longer than 7 days to present or display goods or services.

Both conferences and exhibitions need to have a relevant permit issued by a government entity.

Yes. If you fail to notify the FTA about your expired license and do not apply for renewal, and you continue providing services without collecting and accounting for VAT, then you will be liable to pay the VAT amount due and will be subject to normal applicable penalties.

The template for the written declaration shall be provided by the FTA.

If the supplier was aware or was supposed to be aware that the buyer was not registered for VAT at the time of supply, the supplier and the buyer will both be liable for any tax due and penalties applied on the supply.

The following offences made by a law firm will attract a penalty:

  • If a law firm that is liable to register for VAT does not register before the last date of registration
  • If a law firm does not file VAT returns at all
  • If a law firm does not file VAT returns on time
  • If a law firm files wrongful returns
  • If there is tax evasion

No. VAT is not applicable for car loan installments and their associated interest rates.

Yes, a standard rate of 5% is applicable on purchases of spare parts.

It depends whether the accommodation is considered residential or commercial.

  • If the laborers are provided with an accommodation in a residential building, then it is tax exempt.
  • If there are additional services provided along with the accommodation, then it is considered commercial and subject to the standard VAT rate of 5%.

Refunds will be made after the receipt of the application and subject to verification checks, with a particular focus on avoiding fraud.

Yes, foreign businesses are eligible for VAT refunds in the following circumstances:

  • The business owner is a resident in a GCC state that is not considered to be an implementing state;

Or

  • A foreign entity that carries on business under the following conditions:
  • It has no place of establishment or fixed establishment in the UAE or an implementing state;
  • It is not a taxable person;
  • It is registered as an establishment with a competent authority in the jurisdiction, in which it is established; and
  • It is from a country that provides refunds of VAT to UAE entities in similar circumstances.

The VAT treatment of real estate will depend on whether it is a commercial or residential property.

Supplies (including sales or leases) of commercial properties will be taxable at the standard VAT rate (i.e. 5%).

On the other hand, supplies of residential properties will generally be exempt from VAT. This will ensure that VAT would not constitute an irrecoverable cost to persons who buy their own properties. In order to ensure that real estate developers can recover VAT on construction of residential properties, the first supply of residential properties within 3 years from their completion will be zero-rated.

A residential building is a building or part thereof that is intended and designed for occupation by individuals, and mainly includes buildings which can be occupied by any person as main place of residence. It does not include:

  • Any place that is not a building fixed to the ground and can be moved without being damaged.
  • Any building that is used as a hotel, motel, bed and breakfast establishment, or hospital or the like.
  • A serviced apartment for which services in addition to the supply of accommodation are provided.
  • Any building constructed or converted without lawful authority.

If a property or a newly constructed residential building is sold within three years of its construction, then the first sale will be a zero-rated VAT supply. Any subsequent sales of this property will be exempt from VAT.

The supply (rent, lease, or sale) of residential accommodation is exempted from VAT if any of the following conditions are fulfilled:

  • The duration of the lease exceeds 6 months
  • The tenant of the property holds an Emirates ID

No, they are not required to register for VAT as long as they don’t have any other taxable business activities.

A commercial building is any building or part thereof that is not a residential building.

The rent, sale or leasing of any commercial building is subject to 5% VAT. The VAT amount paid on expenses relating to the supply of a commercial building can be recovered by the owner.

Yes, if the value of the supply in a year is over AED 375,000 or is expected to reach that limit in the next 30 days, then the owner needs to register.

The rent or sale of a residential part of the building shall be treated as zero-rated or exempt, depending on whether this is a first supply or a subsequent supply.

The rent or sale of a commercial part of the building shall be treated as subject to VAT at 5%.

The tax incurred by the owner on the building needs to be apportioned where there is an exempt supply, and the portion related to the taxable supply (at 0% and 5%) may be recovered.

The first supply of a building, whether made wholly or partly, is zero-rated if the building is specifically constructed and designed for charitable purposes as listed in the Designated Charitable Bodies. The subsequent supplies of the building will be subject to standard VAT.

The supply of bare land by either lease or by sale is exempted from VAT. Any VAT costs associated with the supply of bare land will not be recoverable by the supplier.

Yes, if goods were acquired by a registrant in another implementing state and then moved into the UAE, then the tax paid will be treated as recoverable tax.

No, input tax for goods and services meant to be used only for private or non-business purposes can’t be recovered.

Yes, input tax can be recovered for zero-rated supplies.

No, input tax cannot be recovered for tax exempt supplies as there is no tax paid.

VAT on expenses that were incurred by a business can be deducted in the following circumstances:

  • The business must be a taxable person (the end consumer cannot claim any input tax refund).
  • VAT should have been charged correctly (i.e. unduly charged VAT is not recoverable).
  • The business must hold documentation showing the VAT paid (e.g. valid tax invoice).
  • The goods or services acquired are used or intended to be used for making taxable supplies.
  • VAT input tax refund can be claimed only on the amount paid or intended to be paid before the expiration of 6 months after the agreed date for the payment of the supply.

VAT can be recovered for goods and services which need to be provided to your employees on a mandatory basis, or as part of a contractual agreement or documented policy.

When you incur personal expenses on behalf of your employees and do not charge the employees for those expenses, the VAT paid will not be eligible for input tax credit.

Businesses are required to keep records which will enable the Federal Tax Authority to identify the details of the business activities and review transactions. The documents which are required and the time period for keeping them is clarified in Federal Law no. (7) of 2017 on Federal Tax procedures and the Cabinet Decision No. (36) of 2017 on the Executive Regulation of the Federal Law No (7) of 2017 on Tax Procedures.

Any taxable person must retain VAT invoices issued and received for a minimum of 5 years.

Penalties will be imposed for non-compliance.

Examples of actions and omissions that may give raise to penalties include:

  • A person failing to register when required to do so;
  • A person failing to submit a tax return or make a payment within the required period;
  • A person failing to keep the records required under the issued tax legislation;
  • Tax evasion offences where a person performs a deliberate act or omission with the intention of violating the provisions of the issued tax legislation.

Reverse charge mechanism is applicable on the following:

  • Import of goods/services for business purposes
  • Supply of goods/services made by a supplier who does not have an established business in the UAE to a taxpayer who is based in the UAE
  • Purchase of goods from a designated zone
  • Purchase of crude oil or refined oil, natural gas (processed or unprocessed), or hydrocarbons for processing and resale by a registered supplier to a registered buyer in the UAE
  • Supply of gold and diamonds
  • Purchase of gold and diamonds for resale or further production or manufacture.

When the seller does not have a business in the UAE, tracking them is hard for the tax authorities. In order to track these imported supplies and suppliers, the buyers in the UAE are made responsible for paying VAT on a reverse charge basis. This helps the FTA ensure the collection of VAT in cases where the suppliers are non-residents and do not have fixed establishments in the UAE, though the supply is made in the UAE.

Buyers and sellers should make sure they adhere to the following rules:

  • Every registered business owner must keep proper records of their supplies that incur reverse charge.
  • Invoices, receipt vouchers, and refund vouchers must all specify whether the tax payable for that particular transaction is through reverse charge.

Businesses will need to complete additional information on their VAT returns to report revenues earned in each Emirate.

VAT registered businesses will be able to reduce their output tax liability by the amount of VAT that relates to bad debt which has been written off by the VAT registered business.

The legislation will include the conditions and limitations concerning the use of this relief.

A supplier registered or required to be registered for VAT must issue a valid VAT invoice for the supply. To be considered as a valid VAT invoice, the document must follow a specific format as mentioned in the legislation. In certain situations the supplier may be able to issue a simplified VAT invoice. The conditions for the VAT invoice and the simplified VAT invoice are mentioned legislation.

No special rules are planned for small or medium sized enterprises. However, the FTA is providing through its website materials and resources for these entities to assist them in their enquiries.

Islamic finance products are consistent with the principles of sharia and therefore often operate differently from financial products that are common internationally.

To ensure that there are no inconsistencies between the VAT treatment of standard financial services and Islamic finance products, the treatment of Islamic finance products will be aligned with the treatment of similar standard financial services.

Businesses are not allowed to charge VAT unless they are registered for VAT and have a TRN.

Return applicable only to select foreign businesses, which are:

  • the business that is resident in any GCC State that is not considered to be an Implementing State; or
  • a foreign entity that carries on Business but:-
  • has no place of establishment or fixed establishment in the UAE or an

Implementing State;

  • is not a Taxable Person;
  • is registered as an establishment with a competent authority in the jurisdiction in which is established; and
  • is from a country that provides refunds of VAT to UAE entities in similar circumstances.

In the course of its interaction with taxpayers, the FTA may provide its views on various matters in the law. Taxpayers may choose to challenge these views. It should be noted that penalties may be imposed on taxpayers who are found to violate any tax laws and regulations.

Any person will be able to object a decision of the Federal Tax Authority.

As a first step, the person shall request the FTA to reconsider its decision. Such request of re-consideration has to be made within 20 business days from the date the person was notified of the original decision of the FTA, and the FTA will have 20 business days from receipt of such application to provide its revised decision.

If the person is not satisfied with the revised decision of the FTA, it will be able to object to the Tax Disputes Resolution Committee which will be set up for these purposes. Objections to the Committee will need to be submitted within 20 business days from the date the person was notified of the FTA’s revised decision, and the person must pay all taxes and penalties subject of objection before objecting to the Committee. The Committee will typically be required to give its decision regarding the objection within 20 business days from its receipt.

As a final step, if the person is not satisfied with the decision of the Committee, the person may challenge its decision before the competent court. The appeal must be made within 20 business days from the date of the appellant being notified of the Committee’s decision.

All businesses in the UAE will need to record their financial transactions and ensure that their financial records are accurate and up to date. Businesses that meet the minimum annual turnover requirement (as evidenced by their financial records) will be required to register for VAT. Businesses that do not think that they should be VAT registered should maintain their financial records in any event, in case we need to establish whether they should be registered.

VAT-registered businesses generally:

  • must charge VAT on taxable goods or services they supply;
  • may reclaim any VAT they’ve paid on business-related goods or services;
  • keep a range of business records which will allow the government to check that they have got things right

If you’re a VAT-registered business you must report the amount of VAT you’ve charged and the amount of VAT you’ve paid to the government on a regular basis. It will be a formal submission and it is likely that the reporting will be made online.

If you’ve charged more VAT than you’ve paid, you have to pay the difference to the government. If you’ve paid more VAT than you’ve charged, you can reclaim the difference.

Where a VAT registered person incurs input tax on its business expenses, this input tax can be recovered in full if it relates to a taxable supply made, or intended to be made, by the registered person. In contrast, where the expense relates to a non-taxable supply (e.g. exempt supplies), the registered person may not recover the input tax paid.

In certain situations, an expense may relate to both taxable and non-taxable supplies made by the registered person (such as activities of the banking sector). In these circumstances, the registered person would need to apportion input tax between the taxable and non-taxable (exempt) supplies.

Businesses will be expected to use input tax (ratio of recoverable to total) as a basis for apportionment in the first instance although there will be the facility to use other methods where they are fair and agreed with the Federal Tax Authority.

VAT will not be deductible in respect of expenses incurred for making non-taxable supplies. Furthermore, input tax cannot be deducted if it is incurred in respect of specific expenses such as entertainment expenses e.g. employee entertainment.

Non-residents that make taxable supplies in the UAE will be required to register for VAT unless there is any other UAE resident person who is responsible for accounting for VAT on these supplies. This exclusion may apply, for example, where a UAE business is required to account for VAT under a reverse charge mechanism in respect of a purchase from a non-resident.

Businesses will need to complete additional information on their VAT returns to report revenues earned in each Emirate.

Further detail on this can be found in the Executive Regulation of the Federal Decree-Law No. (8) of 2017 on Value Added Tax.

It is intended that we will allow foreign businesses to recover the VAT they incur when visiting the UAE. This is important as it encourages them to do business and also, because a lot of other countries have VAT systems, it protects the ability of UAE businesses to recover VAT when visiting other countries (where the rates are a lot higher).

To disband or cancel a tax group, the representative member must submit a tax group deregistration application to the FTA. The members must each submit a VAT registration application if they are eligible and required to register but have not registered before.

If the tax group is to be disbanded because it is no longer eligible for tax grouping, then the representative member must notify the FTA within 20 days of the change in eligibility.

If you and another business share sufficient economic, financial, and organizational ties to split the applicable VAT amongst you, then the FTA may force you to register as a tax group.

Tourists can submit the required documents when leaving the country and receive their refund through either credit card or cash from the global operator, Planet. This transaction is completely electronic.

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