VAT in Dubai: Rates, Rules, and Refunds

Does VAT in Dubai seem complicated? Do you want to understand the standard 5% rate, how it applies to goods and services, or the refund rules for tourists and businesses? In this article, we break down the VAT system in the UAE, the reporting obligations for companies, and strategies to optimize your tax compliance.

At Amary, a French accounting expert based in Dubai, we share our on-the-ground experience to guide you step by step through the key VAT mechanisms, with real-life examples and tailored advice for your business.

Understanding VAT in Dubai and the UAE

VAT in Dubai is a 5% indirect tax applied to most goods and services. It was introduced in the UAE on January 1, 2018, to diversify the state’s revenue streams. This tax system applies to both local and foreign companies operating within the territory.

Certain specific economic activities benefit from exemptions or a zero rate.

VAT in the UAE is part of a broader economic diversification strategy. It helps reduce dependence on the oil sector, which accounted for 30% of GDP in 2015. The tax revenue estimated at $3 billion in the first year supports the development of other sectors.

The mechanism relies on businesses collecting VAT on behalf of the government.

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The Federal Tax Authority (FTA) manages VAT in the UAE. It is responsible for enforcing tax rules and registering liable businesses.

A Tax Registration Number (TRN) is mandatory to collect VAT. This system ensures compliance and facilitates commercial transactions.

VAT Application and Rules in Dubai

Goods and Services Subject to VAT

Dubai’s standard VAT rate of 5% applies to most goods and services, including imports. Companies must include VAT in their pricing for taxable activities.

Examples of VAT-taxed items:

• Entertainment (cinemas, theme parks, cultural events)
• Consumer electronics and tech devices
• Hotel accommodation and restaurant services
• Food and beverages (with some exceptions)

Foreign companies conducting taxable operations in Dubai must register for VAT and act as tax collectors for the UAE authorities. Compliance depends on revenue thresholds and the nature of operations. French entrepreneurs should pay close attention to their local taxable activities.

Invoices must clearly display the VAT amount, the applied rate, and the TRN. VAT returns are generally filed quarterly, with strict deadlines to avoid penalties.

Exemptions and Zero Rates

Businesses must distinguish VAT exemptions from zero-rating. In exemptions, no VAT is applied and input tax cannot be reclaimed. Under zero-rating, VAT is not charged to the customer but remains reclaimable.

Exempt sectors:

• Real estate
• Healthcare
• Education
• International passenger transport

These sectors do not charge VAT but cannot reclaim it on their business expenses—impacting their financial management.

Sectors eligible for the 0% rate:

• Exports outside the UAE
• Certain financial activities

These businesses don’t charge VAT on sales but can reclaim VAT on purchases.

Dubai’s real estate sector has specific rules. First-time off-plan property sales are VAT-taxable, while secondary transactions may be exempt. Businesses in designated free zones may benefit from tailored tax advantages.

Is your company facing VAT challenges in Dubai? Our experts are available for an initial personalized consultation. At Amary, we turn indirect taxation into a competitive advantage, not a regulatory burden.

VAT Registration for Businesses

VAT registration is mandatory if annual taxable turnover exceeds 375,000 AED. Businesses may voluntarily register starting from 187,500 AED in revenue.

The registration is done online via the FTA platform, where companies submit documents proving their economic activity and legal structure. A TRN is issued after approval.

VAT Refund and Recovery in Dubai

The UAE VAT system allows tourists to reclaim VAT on purchases and businesses to recover VAT on professional expenses. This system enhances Dubai’s fiscal attractiveness.

Tourist VAT Refund

Non-resident tourists can reclaim VAT at international airports before departure. The 5% standard rate applies to most purchases. Tourists must show purchase receipts and unused goods.

Steps:

• Ensure eligibility (purchases over 150 AED per receipt)
• Keep original receipts and unused goods
• Fill out the refund form at the airport
• Present passport and items at the refund counter

Business VAT Recovery

Companies can reclaim VAT on eligible business expenses if registered for VAT. Foreign businesses must follow a specific procedure to request refunds.

French entrepreneurs in Dubai can optimize VAT by maintaining accurate tax documentation. Mistakes can lead to delays or rejected claims. Staying updated on regulations is key.

VAT in Dubai, fixed at 5%, applies to goods, services, and imports, with strategic exemptions. At Amary, we help entrepreneurs with compliance, simplifying registration, recovery, and filings. Understanding these rules helps secure your business plans and optimize growth in a dynamic tax environment.

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Frequently Asked Questions About VAT in Dubai

Does my business need to register for VAT if annual turnover is below 375,000 AED?

‍Registration is voluntary between 187,500 AED and 375,000 AED in annual revenue. Below 187,500 AED, registration is generally not allowed. Consider registering based on your client profile, purchasing behavior, and growth strategy.

How do I calculate if I’ve reached the VAT registration threshold?

‍The threshold is based either on rolling revenue over the last 12 months or a 30-day forecast if you expect to exceed 375,000 AED within the next month.

What are the penalties for non-compliance?

‍Penalties can be high: up to 10,000 AED for failing to register, 5% to 300% of due VAT for late or incorrect filings, and 1% per month of delay for late payments.

Can a foreign company recover VAT paid in the UAE?

‍Yes, under specific conditions: the company must be VAT-registered in its home country, have no establishment in the UAE, and expenses must be business-related. A dedicated refund application process applies.

Does VAT apply to international transactions?

‍Yes. Exports outside the GCC are generally zero-rated (0%). For electronic services provided to UAE consumers (B2C), the 5% VAT applies regardless of the provider’s location.

How can tourists get VAT refunds on purchases in Dubai?

‍Tourists can reclaim VAT on purchases over 150 AED at participating stores. They must keep original receipts, fill out a refund form at international airports, and show unused goods at the refund desk.

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