Non-compliance with UAE VAT legislation can result in penalties. This article provides a comprehensive overview of the key VAT compliance requirements for businesses in the UAE, including registration requirements, tax return payments, invoice conditions, penalties, and maintaining ongoing compliance.
What is UAE VAT Compliance?
UAE VAT compliance refers to the VAT regulations that businesses must comply with within the UAE. These regulations include:
- Application for VAT registration when the company exceeds the threshold limit
- Payment of tax on goods and services in the right manner
- Issuance of VAT-type invoices
- Filing of VAT returns in time in the right manner
- Maintenance of proper books of account
- Payment of tax before the due date
The FTA will prosecute VAT violations, and default will be met with financial penalties and legal action against the company.
Which Businesses are Required to Ensure VAT Compliance in UAE?
- Mainland and Free Zone companies who are involved in taxable transactions
- Retailers, service providers, and e-commerce retailers
- Importers and exporters of goods and services
- Companies operating in Designated and Non-Designated Free Zones
Requirements for VAT Registration in the UAE
UAE VAT registration is categorized into:
- Mandatory VAT Registration
A company must register for VAT if the taxable turnover in a year exceeds AED 375,000.
- Voluntary VAT Registration
Voluntary registration is possible by companies with taxable turnover between AED 187,500 and AED 375,000.
VAT Registration Process
- Step 1: Visit the FTA e-Services Portal and register for an account
- Step 2: Fill in the VAT registration form with business details
- Step 3: Upload supporting documents, such as: Trade license, Emirates ID and Passport copies of owners, financial records showing taxable turnover
- Step 4: Submit application and wait for FTA approval
- Step 5: Get VAT Registration Certificate & Tax Registration Number (TRN)
Penalty for Late VAT Registration
Late registering companies are penalized by the FTA with AED 10,000.
Maintaining Proper VAT Records and Invoices
Types of VAT Books Which Companies Must Keep
- Sales invoices and purchase invoices
- Details of VAT return and payment
- Adjustment and vouchers on tax credits
- Export and import customs documents
The firms will be required to maintain books for VAT for at least five years as stated under the rules of the FTA.
UAE VAT Invoice Rules
There are two types of VAT invoices under UAE law:
-
Standard Tax Invoice (For Sales Above AED 10,000)
- Company name and Tax Registration Number (TRN)
- Issue date and invoice number
- VAT rate (5%) and total VAT figure
-
Simplified Tax Invoice (For Sales Less Than AED 10,000)
- Seller name and TRN
- Price with VAT included
- Total VAT figure
Issue of improper VAT invoices may subject the business to penalties of AED 5,000 per invoice.
Read Also: How to Calculate VAT in UAE
When and How to File VAT Returns?
Businesses are required to file VAT returns on a monthly or quarterly basis, depending on the FTA regulations.
- Due date of VAT return: 28th of the following month after the tax period
- How to submit: Online via FTA portal
- Payment options: Bank transfer, e-Dirham, credit card
VAT Return Form Detail
- Output VAT (Tax paid on sales)
- Input VAT (Tax received on purchasing)
- Total VAT to be paid or refunded
Business must have to submit VAT returns correctly to avoid penalties.
Late Filing Penalty
- AED 1,000 fine for one-time offender
- AED 2,000 fine for regular late filing
What is Output VAT?
- VAT collected on sales
- Charged at 5% on taxable supplies
Example: If business sells a product for AED 1,000, the output VAT is AED 50.
What is Input VAT?
- VAT paid on business expenses and purchases
- Can be recovered if there are valid VAT invoices
Example: A company buys supplies for AED 500; the input VAT is AED 25.
VAT Payable Calculation
VAT Payable = Output VAT – Input VAT
Output VAT > Input VAT, the company pays the difference to the FTA.
In case of Input VAT > Output VAT, the company is eligible for a VAT refund.
VAT Compliance for Free Zone & Offshore Companies
Designated Free Zones and Non-Designated Free Zones
- Designated Free Zones – Certain transactions are zero-rated or exempted.
- Non-Designated Free Zones – Companies need to register for VAT as in mainland companies.
VAT Registration for Offshore Businesses
- Offshore companies are only liable to register if they have taxable supplies in the UAE.
- Tax residence and business activities decide VAT obligations.
VAT Fines and Avoidance
|
Non-Compliance issue |
Penalty |
| Late VAT registration | AED 10,000 |
| Late VAT return filing | AED 1,000 (first offense), AED 2,000 (second offense) |
| Incorrect VAT invoices | AED 5,000 per invoice |
| Failure to maintain records | AED 10,000 – AED 50,000 |
Taxable Persons are advised to seek the expert services of premier Tax Consultants in UAE such as VAT Registration UAE to effectively meet VAT requirements and ensure compliance. Contact us today and we shall be glad to assist you.
FAQs: VAT Compliance for Businesses in UAE
What are the key VAT compliance obligations for UAE businesses?
UAE VAT-registered businesses must:
- Charge VAT (5%) on taxable goods and services
- Issue tax invoices that are VAT compliant and have a valid Tax Registration Number (TRN)
- File VAT returns quarterly or monthly through the FTA portal
- Maintain proper VAT records for at least 5 years
- Pay VAT to the FTA within the prescribed time frame to avoid penalties
What is the fine for non-adherence to VAT laws in the UAE?
Businesses that are not in line with VAT laws can be fined by FTA, such as:
|
Issue of Non-Compliance |
Penalty (AED) |
| Late registration of VAT | 10,000 |
| Late VAT return filing | 1,000 (first time), 2,000 (second time) |
| Incorrect VAT invoice | 5,000 per faulty invoice |
| No maintenance of records for VAT | 10,000 – 50,000 |
In effort to stay away from fines, businesses must conduct timely registration, invoicing, and tax filings.
How often do businesses need to file VAT returns in the UAE?
Companies registered with VAT need to file VAT returns on a monthly or quarterly basis, depending on their status with the FTA:
- Quarterly Filing – Most companies file VAT returns every three months
- Monthly Filing – Certain companies with large volumes of turnover need to file them monthly
VAT returns are due on the 28th of the next month on the termination of the tax period.
What happens if a company fails to file a VAT return on time?
If the company fails to file the VAT return on time, the FTA imposes the following penalties:
- AED 1,000 for the first time
- AED 2,000 for subsequent times
Late payment can also attract extra penalties and interest charges, affecting the cash position of the business.
How do companies become fully VAT compliant in the UAE?
- Register in time for VAT and obtain a Tax Registration Number (TRN)
- Use VAT correctly and prepare VAT-compliant invoices
- Maintain proper VAT accounting records for audit
- File VAT returns on time to avoid penalty
- Consult professional VAT advisory for proper compliance
Read Also: Guide to VAT Registration in UAE for 2025
