How to Calculate VAT in UAE: A Complete Guide

Value Added Tax (VAT) is a 5% consumption tax applicable to goods and services in the UAE. This article explains VAT calculation methods, including formulas, examples, VAT-inclusive and VAT-exclusive pricing and input VAT recovery.

Standard VAT Rate in UAE

• Standard rate of VAT in UAE is 5%
• Certain goods & services are zero-rated (0%) or exempt from VAT

Zero-Rated Supplies: Exports, international transport, certain health & education services.
Exempt Supplies: Local properties, local transport, life assurance.

Companies need to compute VAT accordingly depending on the relevant VAT rate.

Simple Formula for VAT Computation in UAE

The overall VAT formula is:

VAT Amount = Price × VAT Rate (5%)

This formula is used to find out how much VAT is to be paid on a sale or how much input VAT can be recovered.

Example Calculation:

If an enterprise is offering something at AED 1,000, then the VAT amount will be:
VAT = AED 1,000 × 5% = AED 50

The final price paid by the buyer will be:
Total Price = AED 1,000 + AED 50 = AED 1,050

How to Calculate VAT on Different Pricing Modes

VAT-Exclusive Price (Applying VAT on the Sale Price)

A VAT-exclusive price is where the price is excluded of VAT. In order to determine VAT and the final price:

VAT Amount = Price × 5%
Total Price (Inclusive of VAT) = Price + VAT Amount

Example:

A firm sells a laptop for AED 5,000 (exclusive of VAT).

• VAT = 5,000 × 5% = AED 250
• Total price (inclusive of VAT) = AED 5,250

VAT-Inclusive Price (Determining VAT from a Total Price)

A price that includes VAT already has VAT in it. To calculate the VAT amount:

VAT Amount = Total Price × 5 ÷ 105
Price Before VAT = Total Price ÷ 1.05

Example:

One company sells a mobile phone at AED 5,250 (including VAT).

• VAT Amount = 5,250 × 5 ÷ 105 = AED 250
• Price Before VAT = 5,250 ÷ 1.05 = AED 5,000

How to Calculate Output VAT in UAE (VAT Collected from Customers)

Output VAT is the VAT charged on the sale of taxable goods and services.

Formula:

Output VAT = Selling Price × 5%

Example:

A company sells 10 units at AED 1,500 each.

Total Sales = 10 × 1,500 = AED 15,000
Output VAT = 15,000 × 5% = AED 750
This AED 750 must be reported in the VAT return and paid to the FTA.

How to Calculate Input VAT in UAE (VAT Paid on Purchases)

Input VAT is the VAT paid on business purchases and expenses.

Formula:

Input VAT = Purchase Price × 5%

Example:

A company buys an office stationery for AED 3,000.

Input VAT = 3,000 × 5% = AED 150
This AED 150 can be recovered by companies as a VAT refund while filing VAT returns.

How to Calculate VAT Payable to the FTA

Companies have to pay the difference between Output VAT and Input VAT to the FTA.

Formula:

VAT Payable = Output VAT – Input VAT

Example:

Transaction	Amount (AED)	VAT (5%)
Sales Revenue (Output VAT)	50,000	2,500
Business Purchases (Input VAT)	30,000	1,500

 

VAT Payable = 2,500 – 1,500 = AED 1,000

• The company must pay AED 1,000 to the FTA in its VAT return.
• The company can recover VAT when Input VAT is greater than Output VAT.

Also Read: How to Check Validity of Tax Registration Number?

VAT Calculation on Different Business Transactions

• Retail Businesses (Sales to Individuals)

A shop sells a product for AED 200 (VAT-free).

VAT = 200 × 5% = AED 10
Value total = AED 210

• Service Businesses

A consulting business charges AED 10,000 for a service.

VAT = 10,000 × 5% = AED 500
Amount to be paid = AED 10,500

• Importers & Exporters

• Imports are subject to taxation, and companies are obligated to account for VAT on imports.
• Exports are generally zero-rated (0% VAT).

VAT Filing and Payment in UAE

• VAT returns are needed quarterly or monthly through the FTA portal.
• VAT return submission deadline is the 28th of the next month from the tax period.
• Payment of VAT can be done via bank transfer, credit card, or e-Dirham.

Penalties on Late Filing of VAT:

• AED 1,000 as a first-time offence
• AED 2,000 as a second-time offence

VAT Calculation Mistakes & How to Avoid Them

• VAT calculation mistake or VAT calculation mistake – Always apply the correct formula.
• Charge VAT on zero-rated or exempted products – Ensure the tax classification before issuing the invoice.
• Failing to claim back input VAT refund – Retain receipts of all the VAT-paid purchases
• Failure to maintain adequate VAT records – Companies must maintain VAT records for a duration of at least five years.

Seek the Expert Services of VAT Registration in UAE

Businesses need to ensure that VAT is correctly calculated, proper invoices are issued and due tax is paid in order to comply with regulations. With appropriate VAT calculation process in place, they will charge and bill clients accurately and ensure transparency in transactions. Businesses can minimize their VAT costs by getting refunds for the tax they pay on their business purchases. A well-managed VAT system allows businesses to do VAT return submissions promptly and accurately which reduces the chance of penalties and promotes efficient financial operations. The UAE business sector needs to complete VAT Registration UAE to comply with tax laws while gaining access to input VAT recovery benefits.

FAQs: How to Calculate VAT in UAE

Q1. How do I work out VAT on a product or service in the UAE?

UAE VAT is 5% of the taxable value.

Formula:
VAT Amount = Price × 5%

Example:
If a product costs AED 1,000, the VAT will be:
1,000 × 5% = AED 50
The VAT-inclusive price will be AED 1,050.

Q2. How do I work out VAT from an inclusive total price which already contains VAT?

If the price includes VAT, use the following formula to calculate the VAT amount:

Formula:
VAT Amount = Total Price × 5 ÷ 105
Price Before VAT = Total Price ÷ 1.05

Example:
For total price of AED 5,250 (including VAT):
VAT Amount = 5,250 × 5 ÷ 105 = AED 250
Price Before VAT = 5,250 ÷ 1.05 = AED 5,000

Q3. How do businesses calculate VAT payable to the FTA?

VAT payable is calculated as:

Formula:
VAT Payable = Output VAT – Input VAT

Example:

Transaction	Amount (AED)	VAT (5%)
Sales Revenue (Output VAT)	50,000	2,500
Business Purchases (Input VAT)	30,000	1,500

VAT Payable = 2,500 – 1,500 = AED 1,000

This AED 1,000 is due to the FTA when VAT return is filed.

Q4. What if VAT is miscalculated?

Miscalculation of VAT can lead to:

• Financial losses in case of overcharging or undercharging VAT
• Penalty from the FTA for erroneous VAT submissions
• Delay in VAT return or refund processing

To avoid mistakes, businesses must use the correct VAT formulas and maintain proper records. 

Q5. How do businesses ensure accurate VAT calculations?

• Use VAT-approved invoice software
• Use the correct VAT rate (5%, 0%, or exempt)
• Keep records of input VAT for deductibility
• Use the services of VAT professionals for compliance and tax filing

Also Read: How to Register for VAT in the UAE