Value-added tax (VAT) at a rate of 5% has been in force in the United Arab Emirates since 1 January 2018. The obligation to register for VAT purposes is determined not by the type of company, but by the level of taxable turnover and the nature of activities carried out in the UAE.
All companies making taxable supplies of goods or services in the UAE must assess whether VAT registration is required in accordance with the rules set by the Federal Tax Authority (FTA).
VAT registration thresholds
Depending on the level of taxable turnover, the following rules apply:
- Mandatory VAT registration. Companies whose taxable turnover exceeds AED 375,000 per year are required to register for VAT and submit regular VAT returns.
- Voluntary VAT registration. Companies with taxable turnover between AED 187,500 and AED 375,000 per year may register for VAT on a voluntary basis. If they do not register, they are not entitled to recover input VAT.
- No VAT registration requirement. Companies with taxable turnover below AED 187,500 per year are not required to register for VAT. Such companies are not allowed to charge VAT or claim VAT refunds.
Mainland companies and VAT
Mainland (onshore) companies are required to register for VAT only if they exceed the applicable taxable turnover thresholds or carry out activities subject to VAT legislation. Mainland status alone does not automatically trigger a VAT registration obligation.
Free zone companies
Companies registered in free economic zones (free zones) are also subject to VAT rules. Free zone registration does not automatically exempt a company from VAT.
Certain free zones have Designated Zone status in accordance with the list approved by the Federal Tax Authority. Special VAT and customs treatment may apply only if statutory conditions are met and does not cover all types of transactions.
Offshore companies and VAT
Offshore companies registered in the UAE are not required to register for VAT if they do not conduct taxable activities within the UAE.
However, if an offshore company effectively supplies taxable goods or services in the UAE, it may become subject to VAT registration and reporting requirements.
VAT registration procedure and administration
VAT registration is conducted online via the Federal Tax Authority portal. Upon successful registration, a company is assigned a 15-digit Tax Registration Number (TRN).
VAT in the UAE is administered by the Federal Tax Authority (FTA), which is responsible for:
- registering taxpayers;
- receiving and processing VAT returns;
- conducting tax audits;
- monitoring compliance with VAT legislation.
VAT returns are submitted on a quarterly or monthly basis, depending on the FTA-determined schedule for a particular taxpayer.
Accounting and record-keeping requirements
Companies registered for VAT purposes must maintain accurate accounting and tax records.
Financial and tax documentation, including:
- tax invoices;
- contracts;
- accounting records;
- payroll and fixed asset data,
must be retained for at least 5 years (for real estate-related transactions, records must be kept for a longer period).
Practical implications of VAT implementation
The introduction of VAT may require companies to:
- review internal business processes;
- amend contractual documentation;
- implement or upgrade accounting and IT systems;
- engage additional in-house or outsourced resources.
Timely understanding of VAT requirements enables companies to avoid penalties, properly structure their tax model, and ensure full compliance with the Federal Tax Authority (FTA) rules.
