United Arab Emirates: New UAE VAT And Tax Procedures Laws

Last Updated: 12 September 2017
Article by William M. Reichert, Adela M. Mues and Mona Lemp
Most Popular Article in United Arab Emirates, September 2017


As of 1 January 2018, value added tax ("VAT") at the rate of 5% will be applied on a wide range of goods and services in the United Arab Emirates ("UAE"). This follows from the Gulf Cooperation Council's ("GCC") entry into a GCC VAT treaty (the "GCC VAT Treaty") earlier this year, the UAE's publication of Federal Law No. 7 of 2017 on Tax Procedures (the "UAE Tax Procedures Law") in July and Federal Decree-Law No. 8 of 2017 on VAT (the "UAE VAT Law") in August. These developments are part of the GCC's initiative to introduce new sources of revenue for its member states.

The UAE VAT Law sets out the principles for the application of VAT, however it leaves much of the detail to the as yet unpublished Executive Regulations of the UAE VAT Law (the "Executive Regulations"). The Executive Regulations are expected to be issued in the near future by the Ministry of Finance. Further clarification may also be set out in executive regulations to be issued pursuant to the UAE Tax Procedures Law.


What is VAT?

VAT is a tax imposed on the "value" of the supply or import of various goods and services; it is not levied on profit or income. It is seen as a "neutral" or "indirect tax" as businesses essentially collect tax for the government and it is the end consumer who ultimately bears the financial burden of VAT.

VAT is imposed at each stage of a supply chain. A simplified example would be the case of a manufacturer who pays 5% VAT on raw materials. That manufacturer then assembles a product for sale to its customer, a household consumer. The customer will pay a purchase price that includes the manufacturer's cost (cost of the raw materials, assembly cost and manufacturer's profit margin) and 5% VAT. The manufacturer collects VAT from the customer for remittance to the government, but can recover the VAT it pays for the purchase of raw materials by offsetting the VAT paid for raw materials against the VAT received from the customer.

The UAE VAT Law describes the nature of supplies and imports that are subject to VAT, as well as the calculation of the taxable value of such supplies and imports.

What will be the VAT tax rate imposed in the UAE?

The UAE VAT law provides for a uniform VAT tax rate of 5%. This is in line with the tax rate adopted in the GCC VAT Treaty.

Will there be exceptions?

Yes, the supply of some goods and services will be 'exempt' or 'zero-rated', meaning that no VAT will be charged. The main difference between an exempt and zero-rated supply is that: (i) businesses making exempt supplies are not able to recover any VAT that they pay on the goods and services related to such exempt supplies ("input expenses"); whereas (ii) businesses making zero-rated supplies are able to recover VAT paid in relation to input expenses, if applicable.

Examples of some exempt and zero-rated goods and services referred to in the UAE VAT Law are included below:

  1. exempt supplies - the supply of certain financial services (to be specified in the Executive Regulations), residential buildings through sale or lease (unless they are zero-rated), bare land and local passenger transportation; and
  2. zero-rated - direct or indirect exports to countries outside of the GCC, transportation of goods and persons by land, air or sea, supply or import of investment-grade precious metals, the initial sale of a newly built residential building within three years of its completion, the initial sale of buildings specifically designed for use by charities and of buildings converted from non-residential to residential use, the supply of crude oil and natural gas, the supply of educational services by institutions that are government owned or funded and the supply of preventive and basic healthcare services.

Will VAT apply in the UAE's free zones?

It is unclear how the UAE will treat supplies made in free zones. The UAE VAT Law introduces the concept of "Designated Zones" and defines a Designated Zone as any area designated as such by a UAE Cabinet decision (at the recommendation of the UAE Minister of Finance). It remains to be seen whether the Executive Regulations will clarify whether some or all free zones will be Designated Zones, or whether the UAE Cabinet will issue separate decisions in this respect. 

Designated Zones will be treated as being outside of the UAE for VAT purposes. The UAE VAT Law states that goods may be transferred from one Designated Zone to another without any VAT becoming payable. The Executive Regulations will set out the conditions under which business conducted within a Designated Zone will be considered as being conducted within the UAE for VAT purposes. The Executive Regulations are expected to set out the procedures and conditions for the transfer of goods to and from a Designated Zone, as well as the required method for keeping, storing and processing such goods in Designated Zones.

What businesses will be affected?

Pursuant to the GCC VAT Treaty and the UAE VAT Law, VAT will be collected by a "Taxable Person", which includes individuals, companies and partnerships conducting "Business" and supplying taxable goods or services. Taxable Persons are responsible for registering with the UAE's Federal Tax Authority ("FTA"), charging, collecting and paying VAT to the FTA and for all VAT-related record keeping and filing.

The UAE VAT Law defines "Business" broadly to include any on-going and regular commercial, industrial, agricultural and professional activities or services, as well as excavation activities or any activities related to the use of tangible or intangible property.

What are the penalties for non-compliance?

The UAE VAT Law provides that tax evasion is subject to the penalties set out in the UAE Tax Procedures Law. Amongst other consequences, the UAE Tax Procedures Law provides for the imposition of a prison sentence and/or a monetary penalty not exceeding five times the amount of the evaded tax. This is in addition to any other penalties applicable under any other law.

When is the UAE VAT Law coming into effect?

The UAE VAT Law will come into effect as of 1 January 2018.

How should businesses prepare for VAT implementation?


Businesses, as well as certain governmental entities to be determined by a UAE Cabinet decision, that are Taxable Persons will be expected to register with the FTA and obtain a tax registration number. The system for these registrations is expected to be available within the next month.

The GCC VAT Treaty sets out the following registration thresholds for businesses in the GCC:

  1. mandatory registration - businesses with annual supplies in a GCC country exceeding or expecting to exceed AED 375,000 (or c. US$ 100,000) are required to register with the relevant state's tax authority (i.e. the FTA); and
  2. voluntary registration - businesses with annual supplies in a GCC country exceeding or expecting to exceed AED 187,500 (or c. US$ 50,000) may, but are not obliged to, register with a tax authority.

The UAE VAT Law states that the mandatory and voluntary registration thresholds applicable in the UAE will be set out in the Executive Regulations.

To register for VAT, the above thresholds must: (i) have been exceeded in the past 12 months; or (ii) be expected to be exceeded in the next 30 days. The UAE VAT Law further provides that voluntary registration is permitted in cases where a Taxable Person's expenses exceed the voluntary registration threshold. This should benefit start-ups whose expenditures may initially exceed taxable supplies. The main advantage of voluntary VAT registration is likely to be that it will allow registered businesses to apply for tax refunds or offset VAT on input expenses.

Administrative processes

As noted above, the UAE Tax Procedures Law and UAE VAT Law refer to executive regulations which have yet to be published, but which should provide further detail on various issues including registration with the FTA, Arabic language requirements for VAT invoices and records, and the appointment by businesses of legal representatives to serve as contact points with the FTA.

VAT-related record keeping

The UAE VAT Law requires Taxable Persons to keep certain records including, by way of example, records of all supplies and imports of goods and services, all tax invoices and other documents related to receiving goods or services, all tax credit notes and all records of any goods or services that have been exported. Businesses should take steps to put in place adequate document collection and record keeping systems by 1 January 2018.

Review of contracts and record retention

Businesses should review existing contracts and arrangements with both suppliers and customers for clarity as to whether costs are currently inclusive or exclusive of VAT. New contractual terms may be needed to prevent businesses from incurring VAT-related losses. General terms and conditions and standard contracts should also be amended accordingly.

The UAE VAT Law sets out a list of the categories of records that must be kept. The GCC VAT Treaty refers to a record retention period of not less than five years, while the required retention period in the UAE will be set out in the Executive Regulations. It remains to be seen whether the record retention period under the UAE VAT regime will match or exceed the period set out in the GCC VAT Treaty.

Intra-group supplies

Issues such as tax grouping and tax liabilities of corporate groups will also need to be examined. The UAE VAT Law allows two or more related businesses to apply to the FTA for registration as a "tax group" provided that they meet certain conditions, such as being related parties and being each legally established or having a fixed place of business in the UAE. A "tax group" will be treated as a single Taxable Person. This means that intra-group transactions will not be subject to VAT.

UAE businesses should familiarise themselves with the new VAT regime immediately and start putting in place appropriate systems and controls to ensure that they are fully compliant with the UAE VAT Law by 1 January 2018. Publication of the Executive Regulations will help guide this process and allow businesses to manage the impact of VAT on their operations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.