UAE VAT Compliance Guide 2025

Mandatory Registration: Businesses with taxable supplies exceeding AED 375,000 in the past 12 months or expected in the next 30 days must register for VAT. Registration must occur within 30 days of crossing the threshold.

Voluntary Registration: Businesses with taxable supplies between AED 187,500 and AED 375,000 may voluntarily register. This allows input tax recovery but creates filing obligations.

Non-Resident Registration: Foreign businesses making taxable supplies in UAE may need to register.

Registration Process: Online registration via FTA portal, typically processed within 20 business days, requires trade license, financial statements, bank details, estimated revenue projections, and shareholder/director details.

TRN (Tax Registration Number): Upon approval, you receive a 15-digit TRN that must appear on all tax invoices and VAT returns.

Filing Frequency: Most businesses file quarterly. High-volume businesses (over AED 150M annual revenue) file monthly. Some small businesses may file annually.

Filing Deadlines: VAT returns must be filed within 28 days of the end of the tax period. Example: Q1 2025 (Jan-Mar) return due by April 28, 2025.

Payment Deadlines: VAT payment due same day as return filing (28 days after period end).

Late Filing Penalties: AED 1,000 for first late filing, AED 2,000 for second occurrence within 24 months, AED 3,000 for each subsequent late filing within 24 months.

Late Payment Penalties: 2% of unpaid tax immediately, then 4% per month (calculated daily), up to 300% of tax amount.

Filing Process: Log into FTA portal, complete VAT return form (boxes 1-16), reconcile to accounting records, submit electronically, pay via bank transfer or credit card.

Incorrect Tax Invoice Format: Tax invoices must include specific information: supplier name and TRN, customer name, invoice date and number, description of goods/services, total excluding VAT, VAT amount, total including VAT. Missing any element can result in input tax disallowance.

Input Tax on Exempt Supplies: Input tax cannot be recovered on purchases related to exempt supplies (e.g., residential property rental, some financial services). Many businesses incorrectly claim this.

Wrong VAT Treatment: Confusion between standard-rated (5%), zero-rated (0%), and exempt supplies. Example: International transport is zero-rated, not exempt.

Timing Errors: VAT must be accounted for in the period when the supply occurs (earlier of invoice date or payment receipt), not when paid.

Missing Documentation: Input tax claims require valid tax invoices. Businesses often claim VAT without proper documentation.

Related Party Transactions: VAT on related party transactions must be at arm's length value, not cost.

Real Estate: First supply of commercial property is standard-rated. Residential rentals are exempt. First supply of residential is zero-rated (conditions apply). Margin scheme available for certain property sales.

Healthcare: Most healthcare services are exempt when provided by licensed facilities. Medical equipment sales are standard-rated unless sold to licensed healthcare providers.

Education: Pres chool through higher education services are exempt when provided by licensed institutions. Private tutoring is standard-rated.

Financial Services: Most financial services are exempt (lending, deposit taking, life insurance). Fee-based services (advisory, asset management) are standard-rated.

E-commerce: Digital services to UAE consumers are standard-rated. Exports of goods outside GCC are zero-rated (with documentation). Marketplace facilitator rules may apply.

Trading: Imports are subject to VAT at customs (can be reclaimed as input tax). Exports outside GCC are zero-rated. Designated zones have special VAT rules.

Audit Triggers: Large VAT refund claims, frequent amendments to returns, industry risk patterns, random selection, whistleblower reports, inconsistent filings.

Audit Notice: FTA typically provides 20 business days notice, specifying documents required and periods to be audited.

Document Requirements: VAT returns, general ledger, sales and purchase registers, bank statements, tax invoices, customs declarations, contracts, board minutes.

Audit Process: FTA reviews records, tests transactions, interviews personnel, identifies discrepancies, issues preliminary findings, provides opportunity to respond.

Potential Outcomes: No adjustments (clean audit), adjustments with additional tax due, penalties for errors or non-compliance, referral for tax evasion investigation (severe cases).

Representation: You can be represented by a tax agent or advisor during FTA audits.

What is Voluntary Disclosure: Proactively informing FTA of errors in previously filed returns before they discover them.

When to Use It: If you discover you under-reported output tax, over-claimed input tax, or made other VAT errors.

Penalty Reduction: Voluntary disclosure reduces penalties from 50% to as low as 5% of tax amount (depending on timing and circumstances).

Disclosure Process: Calculate the error, quantify tax impact, prepare explanation and supporting documentation, submit via FTA portal, pay the tax immediately.

Timing Matters: Disclose before FTA audit notice for maximum penalty reduction. Disclosure after audit notice still reduces penalties but to lesser extent (30% instead of 5%).

Professional Help: Complex disclosures benefit from tax advisor assistance to minimize penalties and ensure proper presentation.

Administrative Penalties: No tax invoice - AED 5,000 per return period, Failure to maintain records - AED 10,000, Failure to display prices - AED 15,000 per violation, Failure to register - AED 10,000.

Tax-Related Penalties: Late payment - 2% immediately + 4% per month (up to 300%), Delayed refund application - 2% per month of refund amount, Tax evasion - 50% of evaded amount (first time) to 300% (repeat), Deliberate submission of false information - AED 50,000.

Error Penalties: Unintentional errors - 50% of tax (reducible to 5-30% via voluntary disclosure), Repeated errors - penalties escalate, Business activity without registration - penalties plus back tax.

Appeals Process: Can appeal penalties within 20 business days of assessment, submit to Tax Disputes Resolution Committee, further appeal to courts possible.

General Principle: Input tax can be recovered on purchases used to make taxable supplies (standard-rated or zero-rated), not exempt supplies.

Timing of Recovery: Input tax can be claimed in the period when you receive the tax invoice (up to 6 months from invoice date).

Capital Assets: Input tax on capital assets over AED 5,000 must be tracked for capital assets scheme (adjustment required if use changes).

Blocked Input Tax: Cannot recover input tax on entertainment expenses (unless selling entertainment), purchase of cars (unless dealership, taxi, or driving school).

Partial Recovery: Businesses making both taxable and exempt supplies must apportion input tax (various methods allowed).

Documentary Requirements: Valid tax invoice showing supplier TRN, correct details, VAT amount.