UAE VAT guide for SMEs (2026)

UAE VAT for SMEs in 2026: rates, the AED 375,000 threshold, tax invoices, input tax, reverse charge, Form 201 boxes, deadlines and the new penalty regime.

At a glance

Everything a UAE small business needs to run VAT properly in 2026: when to register, how to invoice, what you can recover, how to fill Form 201, and what the new penalty rules cost if you get it wrong.

Standard rate is 5%. Some supplies are zero-rated (0%), some exempt, some outside the scope of VAT.

Registration is mandatory above AED 375,000 of taxable supplies and imports in 12 months; voluntary from AED 187,500.

Returns and payment are due by the 28th day after each tax period ends (usually quarterly).

Since 14 April 2026, late payment costs 14% a year (charged monthly) and a voluntary disclosure costs 1% a month.

From 1 January 2026, no self-invoice is needed for reverse charge, and unused VAT credits lapse after 5 years.

Key dates

28 days: After each tax period ends: file Form 201 and pay

1 Jan 2026: Decree-Law 16/2025: no reverse-charge self-invoice, Art 54 bis, 5-year limit on excess credits

14 Jan 2026: Domestic reverse charge on metal scrap starts (CD 153/2025)

14 Apr 2026: New penalty regime under Cabinet Decision 129/2025

31 Dec 2026: Last date to claim old excess credits caught by the new 5-year limit

1 Jul 2027: E-invoicing goes live for businesses under AED 50m (simplified invoices end for e-invoiced sales)

VAT rates: 5%, zero-rated, exempt and out of scope

UAE VAT has one standard rate of 5% (VAT Law Art 3). Every supply falls into one of four buckets, and the bucket decides two things: whether you charge VAT, and whether you can recover the VAT on your related costs.

Treatment | Examples | Charge VAT? | Recover related input VAT?

Standard-rated (5%) | Most goods and services sold in the UAE, commercial rent, fee-based bank charges | Yes, 5% | Yes

Zero-rated (0%) | Exports outside the GCC, international transport, first supply of a new residential building within 3 years, school education, preventive healthcare, investment gold (99%+) | At 0% | Yes

Exempt | Residential rent after the first supply, bare land, local passenger transport, margin-based financial services such as loan interest | No | No (limited exceptions)

Out of scope | Salaries, government fees, dividends, transfer of a going concern, non-business activity | No | Not applicable

The difference between zero-rated and exempt matters more than it looks. A business exporting AED 1m of goods charges no VAT but recovers all the VAT on its costs. A landlord letting flats also charges no VAT but cannot recover the VAT on its maintenance bills. If you make both taxable and exempt supplies, you apportion shared input VAT using the ratio of taxable to total supplies, with an annual wash-up (ER Art 55).

Exports are zero-rated only with evidence: the goods must leave the UAE (or go under customs suspension) within 90 days of the date of supply, backed by a customs declaration and commercial evidence such as a waybill. Miss it and the sale becomes 5% (ER Art 30).

When you must register, and your TRN

Mandatory: taxable supplies plus imports above AED 375,000 in the past 12 months, or expected in the next 30 days (Art 13; ER Art 7).

Voluntary: supplies or taxable expenses above AED 187,500 (Art 17; ER Art 8). Useful for start-ups with heavy set-up costs.

Non-residents making supplies in the UAE where no one else accounts for the tax: no threshold at all.

Zero-rated sales count toward the threshold. Sales of capital assets do not (Art 20).

You have 30 days from the day the obligation arises to apply. On the 12-month test, registration takes effect from the first day of the following month.

Worked example

A Sharjah trading company sells AED 32,000 a month. At the end of month 12, its rolling total is AED 384,000, above AED 375,000. It must apply within 30 days, and it is registered from the 1st of the next month. Late registration costs AED 10,000 (CD 40/2017 as amended by CD 129/2025).

Once approved you get a Tax Registration Number (TRN): 15 digits, starting with 1 and ending with 03. The first 10 digits form your TIN, which you will need for e-invoicing. If a supplier gives you a TRN that does not fit this pattern, query it before you claim the VAT.

Deregistration works in reverse: if taxable supplies stop, or fall below AED 187,500 over 12 months, apply within 20 business days (ER Art 14).

Tax invoices and simplified invoices

A registered business must issue a tax invoice within 14 days of the date of supply (Art 67; ER Art 59(13)). A full tax invoice needs the words "Tax Invoice", your name, address and TRN, the customer's details and TRN if registered, a sequential number, the issue date, a description, and for each line the unit price, quantity, VAT rate and amount in AED, plus the VAT total in AED and the exchange rate if you invoiced in another currency.

A simplified tax invoice (fewer fields, issued on the date of supply) is allowed only where the customer is not VAT-registered, or the customer is registered and the amount is AED 10,000 or less. It is never allowed for reverse-charge supplies (ER Art 59(5)).

E-invoicing changes this: Once your business is in e-invoicing scope, simplified invoices are effectively gone for e-invoiced transactions (ER Art 59(16), added by CD 100/2025). Businesses under AED 50m revenue go live on 1 July 2027 (MD 244/2025 as amended by MD 66/2026). See our e-invoicing guide.

Credit notes have their own 14-day deadline from the event (a return, a cancellation, a price change) under VAT Law Art 62(2). Each invoice or credit note issued late costs AED 2,500 per case.

Recovering input VAT, and what is blocked

You can recover VAT on costs used to make taxable supplies, in the period when you hold a valid tax invoice and have paid, or intend to pay within 6 months of the agreed date (Art 55; ER Art 54). If you have not paid the supplier 6 months after the agreed date, reverse the claim. If you miss the first period, you can claim in the next one.

Blocked input VAT (ER Art 53)

Entertainment for customers, prospects, officials or shareholders: hospitality, hotel stays, shows, trips. Food and drink in the normal course of a business meeting is not blocked.

Cars with 10 seats or fewer that are available for personal use, whether bought, rented or leased. Taxis, emergency vehicles and rental fleets are excepted; trucks and forklifts are not cars for this rule.

Free personal benefits for staff, unless required by labour law, a contract or a documented policy that is normal practice. Health insurance for the employee, one spouse and up to three children under 18 is recoverable.

Art 54 bis: know your supplier

From 1 January 2026, the FTA must refuse your input VAT if you knew the supply was part of an evasion chain, and may refuse it if you should have known, for example because you never checked the supplier's TRN. Verify new suppliers and keep a record that you did.

Reverse charge, imports and designated zones

Under the reverse charge, the buyer accounts for the VAT instead of the seller. You declare the output VAT in Box 3 and, if the cost is otherwise recoverable, claim the same amount in Box 10. For most businesses the net cash effect is zero, but leaving it off the return is still an error.

Imported services: software subscriptions, consultancy or marketing bought from a supplier outside the UAE (Art 48(1)).

Imported goods by a registrant: declared in Box 6 and recovered in Box 10, rather than paid at customs.

Domestic reverse charge between registrants: crude oil, gas and hydrocarbons; gold, precious metals and stones (CD 127/2024); mobile phones, computers and tablets for resale (CD 91/2023); and metal scrap from 14 January 2026 (CD 153/2025). The supplier does not report these supplies at all; the buyer uses Boxes 3 and 10, not Box 9 (FTA VATP047).

From 1 January 2026, you no longer need to issue a self-invoice for reverse-charge imports (Art 48(1) as amended by DL 16/2025). You still need the supplier's invoice and supporting documents.

Free zone does not mean VAT-free

Only the fenced Designated Zones listed by the Cabinet (CD 59/2017 and the FTA list) are treated as outside the UAE, and only for goods. Goods moving between Designated Zones without being released or used are outside the scope. Services supplied in a Designated Zone are standard-rated, and goods supplied there for consumption are treated as inside the UAE. Every other free zone is simply part of the UAE for VAT. Breaching Designated Zone conditions costs the higher of AED 50,000 or 50% of the tax.

Tax periods, deadlines and Form 201

The standard tax period is 3 months, and the FTA assigns your quarter stagger; you can ask for a different end month (ER Art 62). The FTA may put a business on monthly periods at its discretion. An AED 150m turnover figure is often quoted for monthly filing, but it does not appear in the VAT Law, the Executive Regulation or the FTA returns guide, so treat it as unconfirmed. The period on your registration certificate is what counts.

The return and the payment are both due by the 28th day after the period ends (ER Art 64). For the quarter ending 30 September, that is 28 October.

Box | What goes in it

1a-1g | Standard-rated sales by emirate (Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al Quwain, Ras Al Khaimah, Fujairah): amount, VAT, adjustment

2 | Tax refunds to tourists (retailers in the scheme only)

3 | Supplies subject to reverse charge (imported services, domestic reverse charge purchases)

4 | Zero-rated supplies (amount only)

5 | Exempt supplies (amount only)

6 | Goods imported into the UAE

7 | Adjustments to goods imported

8 | Total of Boxes 1-7

9 | Standard-rated expenses: amount and recoverable VAT

10 | Reverse charge and import VAT you can recover

11 | Total of Boxes 9-10

12 | Total VAT due (from Box 8)

13 | Total recoverable VAT (from Box 11)

14 | Payable tax (12 minus 13). If negative, refundable or carried forward

Box 1 uses the emirate of the establishment most closely connected to the sale, not the customer's emirate.

Worked example: one quarter

A Dubai consultancy invoices AED 400,000 locally (Box 1b, VAT AED 20,000) and AED 80,000 to a client outside the GCC (Box 4). It pays AED 20,000 for software from a US supplier (Box 3 and Box 10, VAT AED 1,000 each). Local purchases are AED 150,000 plus VAT, of which AED 6,000 is client entertainment (blocked), so Box 9 shows AED 144,000 and VAT AED 7,200. Box 12 is AED 21,000, Box 13 is AED 8,200, and Box 14 payable is AED 12,800.

Use the VAT calculator to split VAT-inclusive amounts, and the compliance calendar for your due dates.

Fixing errors and the 2026 penalty regime

If you find a mistake in a filed return, the size of the tax difference decides the route (Cabinet Decision 74/2023 Art 10):

AED 10,000 or less: correct it in your next return.

More than AED 10,000: file a voluntary disclosure within 20 business days of becoming aware, and pay within 20 business days of submitting it.

No tax difference (wrong emirate in Box 1, zero-rated or exempt sales misreported): corrected under FTA Decision 8/2024.

Cabinet Decision 129/2025 replaced the VAT penalty table from 14 April 2026:

Violation | Penalty

Late VAT return | AED 1,000; AED 2,000 if repeated within 24 months

Late payment | 14% a year, charged monthly (about 1.17% per month or part month) on unpaid tax

Voluntary disclosure before an audit notice | 1% per month on the tax difference, from the original due date to the disclosure date

No disclosure before an audit notice | 15% fixed plus 1% per month

Incorrect return | AED 500, waived if corrected before the deadline

Late registration | AED 10,000

Tax invoice or credit note not issued on time | AED 2,500 per case

What a late payment costs now: Leave AED 12,800 unpaid for two months past the due date and the penalty is about AED 299 (12,800 × 14% ÷ 12 × 2). A AED 30,000 underpayment disclosed five months late costs AED 1,500 (1% × 5). Wait for an audit notice and add AED 4,500 (15%). How the new rules apply to violations that started before 14 April 2026 has not been published, so confirm with your adviser before calculating old penalties.

What changed in 2026

No reverse-charge self-invoice from 1 January 2026 (DL 16/2025).

Art 54 bis: input VAT can be denied where you knew, or should have known, of evasion in the supply chain.

5-year limit on excess VAT: a refundable excess must be refunded or used within 5 years from the end of the period it arose in, or it lapses (Art 74(3)). Older balances caught by this rule can still be claimed until 31 December 2026 (DL 17/2025 Art 3).

Metal scrap joins the domestic reverse charge from 14 January 2026.

New penalty regime from 14 April 2026, as above.

The separate VAT limitation period was cancelled; the Tax Procedures Law 5-year rule (Art 46) now governs.

Check your credit balance this quarter: If your FTA account shows an old VAT credit that is already time-barred, or that would lapse within a year of 1 January 2026, decide before 31 December 2026 whether to claim a refund. After that date the transitional window closes.

Common mistakes and a quarterly checklist

Forgetting the reverse charge on foreign software, ads and consultancy.

Claiming VAT on client dinners, staff perks or a company car used privately.

Treating a free zone as VAT-free when it is not a Designated Zone.

Issuing simplified invoices over AED 10,000 to registered customers.

Zero-rating exports without customs evidence within 90 days.

Reporting all sales in one emirate when you have branches elsewhere.

Claiming input VAT without checking the supplier's TRN.

What to do this quarter

Reconcile the VAT control account to Box 12 and Box 13 before filing.

Review supplier invoices unpaid for more than 6 months and reverse the VAT.

Check foreign supplier spend and add it to Boxes 3 and 10.

Confirm the filing date (28 days after period end) and that payment will clear in time.

Log any prior-period error and decide: next return or voluntary disclosure.

Done right: A clean VAT quarter is one where every invoice has the right tax code, every Box 9 claim has a valid tax invoice behind it, and the return is approved a week before the 28th, not on the day.

Running corporate tax too? Read the UAE corporate tax guide, or look up terms in the glossary.

How Rami handles this

Layla maps every posted transaction to its Form 201 box by tax code and emirate, then drafts the return for you to review and approve.

She flags blocked input VAT (client entertainment, cars available for personal use) and purchases that need the reverse charge.

She checks supplier TRNs and keeps a log of those checks, the due-diligence record Art 54 bis expects.

She tracks the 28-day deadline and tells you whether a past error can go in the next return or needs a voluntary disclosure.

Sources

Federal Decree-Law 8/2017 on VAT, as amended by DL 18/2022, DL 16/2024 and DL 16/2025

Cabinet Decision 52/2017 (VAT Executive Regulation), as amended incl. CD 100/2024 and CD 100/2025

Federal Decree-Law 28/2022 on Tax Procedures, as amended by DL 17/2024 and DL 17/2025

Cabinet Decision 74/2023 (Tax Procedures Executive Regulation) Art 10

Cabinet Decision 40/2017 on penalties, as amended by CD 49/2021 and CD 129/2025

FTA Decision 8/2024 (error corrections with no tax difference)

Cabinet Decisions 91/2023, 127/2024 and 153/2025 (domestic reverse charge)

Cabinet Decision 59/2017 (Designated Zones)

FTA Public Clarification VATP047 (reverse charge on metal scrap, Oct 2026)

FTA VAT Returns User Guide (Form VAT201), v4.0

Ministerial Decision 244/2025 as amended by MD 66/2026 (e-invoicing phases)

Last updated 2026-10-19. This guide is general information as of October 2026, not legal or tax advice.