The Value Added Tax (VAT) system in the United Arab Emirates (UAE) is a key component of the country’s modern tax framework, designed to align with global best practices and promote economic growth. Introduced on January 1, 2018, VAT is a consumption tax that is applied to most goods and services at a standard rate of 5%. The Federal Tax Authority (FTA), established in 2016, oversees the implementation and compliance of VAT across the UAE, ensuring a unified approach across all emirates.

1. Standard VAT Rate:

   The standard VAT rate in the UAE is 5%, which applies to most goods and services unless specified otherwise. This rate is relatively low compared to other countries, reflecting the UAE’s commitment to maintaining a competitive and investor-friendly business environment.

2. Zero-Rate and Exemptions:

   Certain goods and services are exempt from VAT, including essential items such as healthcare services, education, and specific financial services. Additionally, some transactions may be zero-rated, meaning VAT is not charged but businesses can claim input tax credits for associated costs. Examples of zero-rated goods and services include exports of goods and services to outside the UAE, international passenger transport, and certain financial instruments.

3. Registration Threshold:

   Businesses in the UAE are required to register for VAT if their annual taxable turnover exceeds AED 375,000. Businesses below this threshold can voluntarily register for VAT if they meet specific criteria, such as regularly supplying taxable goods or services to other VAT-registered businesses.

4. Filing and Compliance:

VAT-registered businesses are required to file periodic tax returns, depending on their taxable turnover. Generally, once you have registered for VAT in the UAE, you are required to file your VAT return and make related VAT payments within 28 days from the end of your tax period.