UAE VAT rates: 5%, zero-rated and exempt supplies explained

Yes, there is VAT in the UAE. Federal Decree-Law No. 8 of 2017 sets a standard rate of 5% on most goods, services and imports, in every emirate. Zero-rated supplies, such as qualifying exports and international transport, carry 0% VAT and the supplier still recovers its input VAT. Exempt supplies, such as residential rent and bare land, carry no VAT and allow no recovery.

Key takeaways

• The standard VAT rate is 5%, the same in every emirate, and has applied since 1 January 2018.
• Zero-rated supplies are taxed at 0%, so the supplier charges no VAT but can still recover the VAT on its related costs.
• Exempt supplies carry no VAT, and the VAT on costs linked to them cannot be recovered.
• Residential property sold or let is generally exempt, while commercial property is taxed at 5%.
• Only listed designated zones that meet the legal conditions are treated as outside the UAE for VAT, and mainly for goods; other free zone businesses apply VAT as on the mainland.

On this page 12 sections

Is there VAT in the UAE?

Yes. Value added tax (VAT) was introduced across the UAE on 1 January 2018, and Article 3 of Federal Decree-Law No. 8 of 2017 sets one standard rate for supplies and imports, subject to the zero rate and the exemptions in the same law.

Standard VAT rate

5%

UAE VAT is charged at a standard rate of 5% on taxable supplies and imports of goods and services, unless a supply is zero-rated or exempt.

VAT is a federal tax administered by the Federal Tax Authority (FTA), so Dubai, Abu Dhabi and the other emirates all apply the same rate and the same rules. It is a tax on consumption that businesses collect in stages along the supply chain. A registered business adds output VAT to its sales and deducts the input VAT it paid on its business purchases; it pays the FTA the difference, or reclaims it when its input VAT is higher.

VAT is charged by businesses that are registered, or required to register, for VAT. For a business resident in the UAE, registration becomes compulsory once its taxable supplies and imports pass this threshold:

Mandatory VAT registration threshold

AED 375,000

A business must register for VAT if the value of its taxable supplies and imports exceeded AED 375,000 over the previous 12 months, or is expected to exceed AED 375,000 in the next 30 days.

VAT is separate from corporate tax, which is charged on business profits and has its own rates and bands.

Standard, zero-rated and exempt: the three treatments

A supply that falls within UAE VAT is standard-rated at 5%, zero-rated at 0% or exempt. For the customer, zero-rated and exempt supplies look the same, because neither adds VAT to the price. The difference is in the third column of the table: whether the supplier can recover the VAT on its own costs.

Under Articles 1 and 44 of the VAT Decree-Law, a zero-rated supply is still a taxable supply, charged at 0%. An exempt supply is not a taxable supply, and the input tax related to it is not recovered. Some transactions fall outside VAT altogether: certain supplies of goods within designated zones, for example, are treated as made outside the UAE, as the free zone section below explains.

Which supplies are zero-rated

Article 45 of the VAT Decree-Law lists the supplies taxed at 0%. Because they remain taxable supplies, the supplier keeps its right to recover the VAT on related costs.

Zero-rated supplies

0%

Zero-rated (0%) supplies are exports of goods and services to outside the Implementing States (the GCC states that apply VAT and that the UAE treats as Implementing States), international transport of passengers and goods and related services, certain air, sea and land means of transport and the goods and services used to operate and maintain them, investment precious metals, the first supply of a residential building within three years of its completion and first supplies of buildings designed for charities or converted to residential use, crude oil and natural gas, and designated education and healthcare services.

In full, Article 45 covers:

• direct and indirect exports of goods and services to outside the Implementing States (explained below);
• international transport of passengers and goods that starts or ends in the UAE or passes through it, with related services, and air passenger transport within the UAE that counts as international carriage under the Warsaw Convention;
• certain air, sea and land means of transport for passengers and goods, air and sea rescue aircraft and vessels, goods and services for operating, repairing, maintaining or converting those means of transport, and goods and services consumed on board during international transport;
• investment precious metals, which Article 36 of the Executive Regulation defines as gold, silver and platinum of 99% purity or more, in a form tradeable in global bullion markets;
• the first supply, by sale or lease, of a residential building within three years of its completion, of a building designed for use by a charity, and of a building converted from non-residential to residential use;
• crude oil and natural gas;
• educational services for nurseries, preschool and school education, and for higher education institutions owned or funded by the federal or a local government, with related goods and services;
• preventive and basic healthcare services, with related goods and services.

Articles 30 to 41 of the Executive Regulation set the conditions for most of these categories and the evidence the supplier must keep, such as proof that exported goods left the country. A supply that does not meet them is not zero-rated.

Exports to other GCC countries

The zero rate covers exports to outside the Implementing States, which is not the same as outside the GCC. Implementing States are GCC states that apply VAT under their own legislation, as specified in the Executive Regulation, and a GCC state counts only if it meets two conditions:

GCC Implementing States

No other GCC state recognised as an Implementing State (FTA, July 2020)

A GCC state is treated as an Implementing State for UAE VAT only if it treats the UAE as an Implementing State in its published legislation and fully complies with the Common VAT Agreement of the GCC States; the FTA has stated that the UAE currently does not recognise any other state as an Implementing State.

The FTA set out this position in public clarification VATP019, issued in July 2020. On that basis it concluded that, for exported services, the condition that the customer has no place of residence in an Implementing State is met when the customer has no place of residence in the UAE. The position changes if another GCC state comes to meet the conditions, so for any given export it is the FTA’s current published position that counts.

Which supplies are exempt

Article 46 of the VAT Decree-Law exempts four kinds of supply, and Articles 42 to 45 of the Executive Regulation set the conditions for each.

Exempt supplies

Exempt (no VAT, no input VAT recovery)

Supplies exempt from VAT are specified financial services, residential buildings sold or leased (other than zero-rated first supplies), bare land, and local passenger transport; commercial property is taxed at 5%.

Financial services

Only the financial services specified in Article 42 of the Executive Regulation are exempt. Broadly, the line is drawn by how the service is paid for: a financial service provided for an explicit fee, commission, discount, rebate or similar is taxed at 5% (Article 42(4)). Article 42(3) exempts:

• financial services, such as loans, credit and the operation of current, deposit or savings accounts, that are not provided for an explicit fee, commission, discount or rebate;
• the issue, allotment or transfer of ownership of equity securities, such as shares, and of debt securities;
• life insurance contracts and their reinsurance;
• the management of investment funds licensed by a competent authority in the UAE;
• the transfer of ownership and the conversion of virtual assets, including virtual currencies.

Islamic finance products are treated in the same way as the conventional products they match (Article 42(5)), and a financial service that meets the conditions for an export of services is zero-rated instead (Article 42(7)).

Residential property and bare land

The sale or lease of a residential building is exempt, apart from the zero-rated first supplies listed above. Article 37 of the Executive Regulation defines a residential building as one intended and designed for people to live in, including student housing, housing for the armed forces and police, orphanages, nursing homes and rest homes. Hotels, motels, hospitals, hotel apartments and serviced apartments are not residential buildings for VAT. Bare land is land not covered by completed or partially completed buildings or civil engineering works (Article 44), and its supply is exempt.

Local passenger transport

Carrying passengers from one place in the UAE to another is exempt when it uses a qualifying means of transport: a motor vehicle designed for passengers, such as a taxi, bus, train, tram or monorail; a ferry, abra or similar vessel; or a passenger helicopter or aeroplane (Article 45 of the Executive Regulation). There are two exceptions. A domestic flight that forms part of international carriage under the Warsaw Convention is zero-rated as international transport, and a pleasure trip whose main purpose is sightseeing, dining or entertainment does not qualify for the exemption.

VAT on rent and property

Residential rent and sales are generally exempt, commercial property is taxed at 5%, and the first supply of a new residential building within three years of completion is zero-rated. The Ministry of Finance explains the split this way: the exemption keeps VAT from becoming a cost people cannot recover when they buy their own homes, and the zero rate lets developers recover the VAT they pay on construction.

For a residential lease, the exemption also depends on the tenancy:

When a residential lease is exempt

Lease of more than 6 months, or a tenant with a UAE identity card

A supply of a residential building, unless it is zero-rated, is exempt from VAT where the lease is for more than six months or the tenant holds an identity card issued by the Federal Authority for Identity and Citizenship; the tenancy period is the contractual period, ignoring any option to extend or renew and any right to end the lease early.

A landlord that lets both commercial and residential units makes both taxable and exempt supplies, which limits how much of its input VAT it can recover, as the next section shows.

Why zero-rated and exempt are not the same

The difference is input VAT. Under Article 54 of the VAT Decree-Law, a business recovers the VAT on goods and services it uses to make taxable supplies, and zero-rated supplies are taxable supplies. Exempt supplies are not, so the VAT on costs linked to them stays with the business as a cost.

Worked example

Same costs, different VAT outcome

The businesses and amounts are illustrations.

1. Business A and Business B each buy supplies for AED 40,000 plus VAT of AED 40,000 × 5% = AED 2,000, paying AED 42,000 in total.
2. Business A is VAT-registered and exports all its goods outside the UAE, meeting the conditions for zero-rating. It charges 0% on its sales and recovers the AED 2,000 in its VAT return, so its purchases cost it AED 42,000 minus AED 2,000 = AED 40,000.
3. Business B lets residential flats on leases that qualify for the exemption. It charges no VAT on the rent and cannot recover the AED 2,000, so its purchases cost it the full AED 42,000.
4. On identical purchases, Business B carries AED 42,000 minus AED 40,000 = AED 2,000 more cost than Business A.

Zero-rated: input VAT of AED 2,000 recovered. Exempt: AED 2,000 becomes a cost.

Businesses with both kinds of supplies

Many businesses make taxable and exempt supplies side by side; the Ministry of Finance gives the banking sector as an example. VAT on a cost used only for taxable supplies is recovered in full, VAT on a cost used only for exempt supplies is not recovered, and VAT on shared costs, such as general overheads, is split between the two. The split is called apportionment, and Article 55 of the Executive Regulation sets the method:

How shared input VAT is split

Input tax ratio now; supplies-based ratio from the first tax year starting after 1 October 2027

A taxable person whose input VAT relates partly to supplies that allow recovery and partly to other supplies recovers that shared input VAT by the percentage of recoverable input tax to total input tax in the tax period, rounded to the nearest whole number, with an annual adjustment and alternative methods only with FTA approval; for the first tax year starting after 1 October 2027, the percentage becomes the value of supplies that allow recovery to the value of all supplies, excluding capital asset supplies and reverse-charge receipts.

No single percentage applies to everyone: each business works out its own ratio from its own figures for each tax period.

VAT in free zones and designated zones

A free zone company is treated like a mainland business for VAT unless it is in a designated zone, and even there only some supplies of goods are treated differently. Designated zones are free zones listed in Cabinet Decision No. 59 of 2017 and its amendments, a list the FTA publishes, and each must meet these conditions:

VAT designated zones

Outside the UAE for VAT on goods, if listed and the conditions are met

A Designated Zone specified by Cabinet decision is treated as outside the UAE and outside the Implementing States for VAT if it is a fenced area with security measures and customs controls, has internal procedures for keeping, storing and processing goods, and its operator follows FTA procedures; services supplied in a Designated Zone are treated as supplied inside the UAE, apart from certain shipping and delivery services linked to goods sold through electronic sales platforms.

Inside a designated zone, the special treatment is limited:

• services supplied in a designated zone are treated as supplied in the UAE, and so are water and energy (Executive Regulation, Article 51(6) and (8)); Article 51(7) makes a narrow exception for some shipping and delivery services linked to goods sold through online platforms;
• goods supplied within a designated zone to a person who will consume them are treated as supplied in the UAE, unless an exception in Article 51(5) applies, for example goods built into other goods in the same zone, or goods delivered outside the UAE with evidence;
• goods can move between designated zones without VAT if they are not released, used or altered on the way and move under customs suspension (Article 51(3));
• a business established in a designated zone is treated as resident in the UAE for VAT (Article 51(10)).

Being in a free zone for corporate tax purposes does not settle the VAT position. The FTA’s public clarification TAXP010 (October 2026) says the definitions of free zones and designated zones differ between the tax laws, so a business checks its status under each law separately. For VAT, it checks the FTA’s published list of designated zones and confirms with its free zone authority that its own area meets the conditions in Article 51(1).

VAT on imports

Imported goods are subject to VAT at 5%, unless they fall in a zero-rated category, and the VAT is worked out on a value that includes the customs duty paid. In effect, the customs duty itself attracts VAT.

Value of imported goods for VAT

Customs value + customs duties + Excise Tax

For VAT, the value of imported goods is their customs value under customs legislation, including insurance and freight, plus any customs duties and Excise Tax paid on the import; VAT itself is not included in the value.

A VAT-registered importer that meets the conditions in Article 48 of the Executive Regulation accounts for this VAT through the reverse charge in its VAT return (Article 48 of the VAT Decree-Law). An importer that is not registered, or does not meet those conditions, pays it before the goods are released (Article 49 of the VAT Decree-Law and Article 50 of the Executive Regulation). Goods under customs suspension, such as goods in transit or in a customs warehouse, are not treated as imported, and some imports exempt from customs duty, such as travellers’ personal effects, carry no VAT (Executive Regulation, Article 47).

Worked example

Import VAT on a shipment

The values are illustrations; the customs duty depends on the goods and where they come from.

1. The customs value of the goods, including insurance and freight, is AED 100,000.
2. Customs duty paid on the import is AED 5,000, and the goods carry no excise tax.
3. The value for VAT is AED 100,000 + AED 5,000 = AED 105,000.
4. VAT is AED 105,000 × 5% = AED 5,250.

Import VAT: AED 5,250, of which AED 250 (AED 5,000 × 5%) comes from including the duty in the value.

How the duty itself is worked out, and which goods pay none, is in the guide to UAE customs duty.

Prices shown to customers include VAT

In the UAE, the advertised price of a taxable supply is the price the customer pays, VAT included.

VAT-inclusive prices

Advertised prices include VAT

For a taxable supply, the advertised price must include VAT; the cases in which prices may exclude VAT are set by the Executive Regulation.

Article 27 of the Executive Regulation sets the exceptions. A supplier may show prices excluding VAT, clearly marked as such, for exports and where the customer is VAT-registered, and must show them excluding VAT for supplies the customer accounts for under the reverse charge.

Penalty for prices shown without VAT

AED 5,000

A taxable person that fails to display prices inclusive of VAT is liable to an administrative penalty of AED 5,000.

To find the VAT inside a VAT-inclusive price at 5%, multiply the price by 5/105, which is the same as dividing it by 21. What is left is the net price. When the result runs to fractions of a fils, the law allows rounding:

Rounding VAT

Nearest fils

Where the VAT chargeable on a supply works out to a fraction of a fils, the taxable person may round the amount to the nearest fils using mathematical rounding.

Worked example

Finding the VAT in a VAT-inclusive price

The prices are illustrations.

1. A price of AED 1,050 includes VAT of AED 1,050 × 5/105 = AED 50.
2. The net price is AED 1,050 minus AED 50 = AED 1,000.
3. A price of AED 99.99 includes VAT of AED 99.99 × 5/105 = about AED 4.7614, which rounds to AED 4.76.
4. The net price is AED 99.99 minus AED 4.76 = AED 95.23.

VAT inside AED 1,050: AED 50. VAT inside AED 99.99: AED 4.76.

Where to go next

The categories above decide how much VAT a supply carries. Other parts of the system have rules of their own: who must register for VAT and by when, filing a VAT return and paying the tax, the reverse charge on imports and on some domestic trades, and VAT refunds for tourists on goods they take home. Excise tax is a separate tax, with its own rates, on specific goods such as tobacco products and sweetened drinks. Every published guide on these topics is listed on the VAT and excise guides page.