Value Added Tax (VAT) was implemented in the United Arab Emirates on January 1, 2018, at a standard rate of 5%. It’s a type of consumption tax charged on most goods and services, where businesses act as intermediaries collecting tax on behalf of the government.

Key Facts About VAT in the UAE

• Standard rate: 5% applies to the majority of goods and services.
• Zero-rated (0%): Exports, international transportation, certain healthcare and education services, and the first sale of new residential property.
• Exempt supplies: Financial services, domestic passenger transport, and transactions involving bare land.
• Mandatory registration: Required for businesses whose taxable supplies exceed AED 375,000 per year.
• Voluntary registration: Optional for entities earning between AED 187,500 and AED 375,000 annually.

While consumers ultimately bear the cost of VAT, it’s the responsibility of registered businesses to collect it, file returns, and remit payments to the Federal Tax Authority (FTA).

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VAT Late Payment Penalties in the UAE

A VAT late payment penalty is imposed on businesses that fail to pay their VAT obligations within the timeframe set by the FTA. Generally, payment must be completed within 29 days after the end of each tax period. Missing the due date leads to penalties that escalate the longer the payment remains overdue.

Possible Consequences of Late VAT Payments

• Accumulating financial penalties.
• Legal action in serious non-compliance cases.
• Additional audits or inspections by the FTA.
• Damage to business reputation among clients and partners.

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VAT Compliance Requirements for UAE Businesses

Staying compliant with VAT rules is crucial for every registered business in the UAE. The VAT system, overseen by the FTA, ensures fair taxation and transparency across industries.

Core VAT Compliance Obligations

• Registration: Companies with annual taxable turnover of AED 375,000 or more must register for VAT. Those earning above AED 187,500 can register voluntarily.
• Filing VAT returns: Returns must be submitted within 28 days following the end of the tax period.
  • Businesses with annual turnover below AED 150 million usually file quarterly.
  • Businesses exceeding AED 150 million typically file monthly.
• Paying VAT: When the VAT collected from sales (output tax) is greater than the VAT paid on purchases (input tax), the difference must be paid to the FTA before the due date.

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VAT Filing and Payment Deadlines in 2025

VAT filing frequency depends on business size:

• Quarterly returns: Common among small and medium-sized enterprises (SMEs).
• Monthly returns: Required for companies with higher turnover.

Both the VAT return submission and payment must be completed by the 28th day of the month following the tax period.
If this date coincides with a weekend or public holiday, businesses must make payment on the last working day before the due date to avoid penalties.

Contact us to get help with VAT registration & returns.