Understand UAE VAT in minutes – input vs output VAT, blocked VAT, reverse charge, exempt vs zerorated, VAT return deadlines, and real examples.
Quick summary
- Output VAT is VAT you charge on taxable sales. Input VAT is VAT you pay on business purchases.
- VAT payable to the FTA is usually: Output VAT – Recoverable Input VAT.
- Input VAT is recoverable only if the purchase is for taxable supplies, you hold a valid tax invoice, and the VAT is not blocked under UAE rules
- Zero-rated supplies (0%) still allow Input VAT recovery. Exempt supplies do not.
- VAT returns and payments are due within 28 days from the end of the tax period assigned by the FTA.
- Tax invoices are a core compliance requirement and generally must be issued within 14 calendar days from the date of supply.
What is VAT in the UAE?
Value Added Tax (VAT) is an indirect tax applied on the supply of goods and services in the UAE. The standard VAT rate is 5%.
Depending on the nature of the supply, a transaction can be:
- Standard-rated (5%)
- Zero-rated (0%)
- Exempt (no VAT charged and Input VAT is generally not recoverable)
- Out of scope (not treated as a taxable supply for UAE VAT)
What is Output VAT?
Output VAT is the VAT you charge to your customer when you make a taxable supply (for example, selling goods locally or providing a taxable service in the UAE).
In practice, Output VAT becomes your responsibility to report in the VAT return. You are collecting the VAT on behalf of the FTA.
Common examples of Output VAT
- Sale of goods within the UAE
- Professional services and consultancy fees
- Commercial property rent (where VAT applies)
- Most digital and online services supplied in the UAE
When does Output VAT become payable?
Output VAT is generally accounted for based on the “date of supply” rules (timing rules) under the Executive Regulations. For many businesses, the key trigger is the earliest of: issuing the tax invoice, receiving payment, or the actual supply date (depending on the transaction type).
Tip: Align your invoicing process with your VAT return period to avoid missing Output VAT on advance payments or milestone billing
Tax invoices matter
Your customer may only recover Input VAT if the tax invoice is valid. The FTA also expects invoices to be issued on time and to contain mandatory details (TRN, supply description, VAT amount, etc.).
What is Input VAT?
Input VAT is the VAT you pay on goods or services purchased for your business. If the expense supports taxable supplies, you may be able to recover (deduct) that Input VAT in your VAT return.
Common examples of Input VAT
- Office rent and utilities (where VAT applies)
- Professional fees (accounting, legal, consulting)
- Marketing and advertising costs
- Inventory, trading stock, and raw materials
- IT subscriptions and software licenses
When can you recover Input VAT in the UAE?
Input VAT recovery is not automatic. It is generally allowed when all of the following are true:
- You are registered for VAT in the UAE
- The purchase is used (or intended to be used) to make taxable supplies (standard-rated or zero-rated)
- You hold and keep a valid tax invoice (or approved alternative documents)
- The VAT is not “blocked” under UAE VAT rules
- You recover the VAT in the correct tax period, based on FTA guidance on timing of Input VAT recovery
Important timing note (often missed)
FTA public clarifications set expectations on which VAT return period an Input VAT claim should be made. Practically, ensure the invoice is received, recorded, and you have the intention to pay within the allowed period (where relevant) before claiming the Input VAT. If Input VAT is missed or incorrectly claimed, it may need correction via the VAT return adjustment or a voluntary disclosure, depending on the case.
Input VAT incurred before VAT registration
Input VAT incurred before VAT registration is generally not recoverable. However, UAE VAT legislation allows recovery in specific cases, provided conditions are met and the claim is made in the first VAT return after registration.
Typical conditions include:
- Goods are still on hand at the registration date (subject to conditions and time limits set in the legislation)
- Certain services were received within a limited period before registration
- The costs relate to future taxable supplies (not exempt activities)
Practical tip: Keep a clear “pre-registration VAT log” with invoice copies, stock evidence, and usage justification.
Blocked (non-recoverable) Input VAT in the UAE
Not all VAT on expenses is recoverable. Certain categories are blocked under the UAE VAT Executive Regulations.
Common blocked items include:
- Entertainment provided to customers or non-employees (e.g., hospitality, meals, event tickets)
- Employee personal benefits (where not required for business purposes)
- Passenger motor vehicles available for personal use
- Any non-business or private expenditure
Tip: Businesses often fail VAT audits due to entertainment and vehicle-related Input VAT claims. A simple expense tagging policy in your accounting system can prevent repeated errors.
Zero-rated vs exempt supplies: why it changes your Input VAT
The VAT rate you apply to sales affects whether you can recover Input VAT on related costs.
| Type of supply | VAT on sale | Input VAT recovery on related costs |
| Standard-rated | 5% | Generally recoverable (if conditions met) |
| Zero-rated | 0% | Generally recoverable (if conditions met) |
| Exempt | No VAT charged | Generally NOT recoverable (partial exemption may apply) |
Example: Exporting goods or services may be zero-rated, meaning you charge 0% VAT but can still recover Input VAT on related costs. By contrast, residential rent is typically exempt, so Input VAT linked to it may not be recoverable.
Reverse Charge Mechanism (RCM) and imports (advanced but essential)
If you import services from outside the UAE (or in certain import scenarios), VAT may be accounted for under the Reverse Charge Mechanism. This means the UAE business self-accounts for VAT as Output VAT in the VAT return, instead of the foreign supplier charging UAE VAT.
If the imported services (or goods) are used for taxable supplies, the same VAT may also be recoverable as Input VAT – leading to a net nil cash impact, but only if correctly reported in the VAT return.
Tip: Reverse charge errors are common in marketing subscriptions, SaaS tools, and professional services purchased from overseas vendors.
Businesses with both taxable and exempt income (apportionment)
If your business makes both taxable supplies (5%/0%) and exempt supplies, you may need to apportion Input VAT – meaning you can only recover the portion linked to taxable supplies. The Executive Regulations and FTA guidance provide a standard method and scenarios where a special method may be approved.
How Input VAT and Output VAT work together
Your net VAT position for a tax period is typically calculated as:
VAT payable = Output VAT – Recoverable Input VAT
Possible outcomes:
- Output VAT > Input VAT: You pay the difference to the FTA
- Input VAT > Output VAT: You carry forward a VAT credit (or apply for a refund, subject to conditions)
2026 update: time limit on refund claims / credit balances
From 1 January 2026, UAE VAT law amendments introduced a five-year time limit to submit requests to reclaim excess refundable tax after reconciliation. Practically, this means businesses should not let old VAT credit balances sit unreviewed for years — reconcile and action them on time.
Simple VAT calculation example
- Sales: AED 100,000 | Output VAT @5% = AED 5,000
- Purchases: AED 60,000 | Input VAT @5% = AED 3,000
- Net VAT payable: AED 5,000 – AED 3,000 = AED 2,000
VAT return filing in the UAE (what the FTA expects)
VAT returns are filed monthly or quarterly, depending on the tax period assigned by the FTA when you register.
Key points to stay compliant:
- Submit the VAT return and pay any VAT due within 28 days from the end of your tax period
- Reconcile your VAT return to your accounting records (sales ledger, purchase ledger, and tax invoice files)
- Maintain proper documentation and retain records as required by UAE tax procedures
Common UAE VAT mistakes (and how to avoid them)
- Claiming Input VAT without a valid tax invoice
- Recovering blocked Input VAT (especially entertainment and vehicles)
- Treating exempt income as zero-rated (or vice versa)
- Missing reverse charge transactions on imported services
- Not accounting for VAT on advance payments
- Not reconciling VAT returns to the general ledger / tax control accounts
- Late filing or late payment (penalty risk)
Best-practice VAT compliance checklist
- Maintain a VAT “tax control” account and reconcile it every period
- Keep tax invoices in a structured folder by tax period
- Tag blocked expenses clearly in your accounting system
- Run a “RCM check” for overseas vendor bills every month/quarter
- Review zero-rated and exempt classifications before filing
- Do a final VAT return tie-out to the trial balance before submission
Frequently asked questions (FAQs)
1. What is the difference between Input VAT and Output VAT?
Input VAT is VAT you pay on business purchases. Output VAT is VAT you charge customers on taxable sales.
2. Can I recover Input VAT in the UAE?
Yes, if you are VAT-registered, the expense supports taxable supplies, you hold a valid tax invoice, and the VAT is not blocked.
3. What happens if Input VAT is higher than Output VAT?
You will generally have a VAT credit that can be carried forward or (in some cases) claimed as a refund subject to FTA rules.
4. Is VAT on client meals recoverable?
In many cases, VAT on entertainment provided to customers or non-employees is blocked and not recoverable.
5. Do I need to charge VAT on exports?
Many exports are treated as zero-rated (0%), subject to meeting the legal conditions and keeping supporting export evidence.
6. Are VAT returns filed monthly or quarterly?
It depends on the tax period assigned by the FTA at registration. The filing frequency is shown in your FTA e-Services account.
Disclaimer
This guide is for general information only and does not constitute tax advice. VAT treatment can vary based on specific facts, contracts, and sector rules. Consider obtaining professional VAT advice for complex transactions or high-risk areas such as exemptions, designated zones, and reverse charge assessments.