Tax Compliance and VAT Filing for UAE Businesses

Since the introduction of Value Added Tax (VAT) in 2018, tax compliance has become an essential part of running a business in the UAE. Although the country remains one of the world’s most tax-friendly environments, the Federal Tax Authority (FTA) enforces strict compliance rules — and penalties for errors or late filings can be significant.

This article explains how to stay on top of your VAT obligations, avoid common mistakes, and keep your UAE business fully compliant.

Understanding VAT in the UAE

VAT in the UAE is charged at a standard rate of 5% on most goods and services. Certain items are zero-rated (0%) or exempt from VAT, depending on the nature of the transaction.

• Standard-rated (5%) – Most products and services.

• Zero-rated (0%) – Exports, international transport, educational services, and healthcare (when approved).

• Exempt – Residential property leases, local passenger transport, and some financial services.

Understanding which category your business falls under is crucial for accurate invoicing and VAT return filing.

Who Needs to Register for VAT

Businesses must register for VAT if their taxable supplies exceed AED 375,000 in the previous 12 months or are expected to exceed that amount in the next 30 days.

• Mandatory Registration Threshold: AED 375,000

• Voluntary Registration Threshold: AED 187,500

You can register directly via the FTA e-Services portal. Once registered, your business receives a Tax Registration Number (TRN), which must appear on all VAT invoices.

Filing VAT Returns in the UAE

Most businesses file their VAT returns quarterly, although some are required to file monthly based on turnover. Each VAT return must be submitted through the FTA portal within 28 days of the end of the tax period.

Your VAT return should include:

• Output tax (VAT charged on sales).

• Input tax (VAT paid on purchases).

• Adjustments and corrections (if applicable).

If input tax exceeds output tax, you can request a refund or carry the balance forward to offset future liabilities.

Record-Keeping and Invoicing Requirements

UAE businesses must maintain proper accounting records and invoices for at least five years (longer for real estate-related activities).

Each VAT invoice must include:

• Supplier and customer details.

• TRN of the supplier.

• Unique invoice number and date.

• Description of goods or services.

• VAT rate and total amount due.

Using compliant accounting software such as Zoho Books can help automate VAT calculations and ensure invoices meet FTA standards.

Common VAT Mistakes to Avoid

Many SMEs in the UAE incur penalties for simple errors. Avoid these common pitfalls:

• Failing to issue VAT-compliant invoices.

• Missing VAT filing deadlines.

• Claiming VAT on exempt or non-business expenses.

• Not reconciling input and output tax properly.

• Ignoring foreign exchange rate adjustments for multi-currency invoices.

The FTA imposes fines starting from AED 1,000 for first offences and higher for repeated or deliberate non-compliance.

The Benefits of Professional VAT Support

Navigating VAT rules can be complex, especially for companies trading across multiple emirates or operating in both free zones and the mainland. Partnering with a professional UAE tax and accounting firm ensures that returns are accurate, deadlines are met, and deductions are optimised.