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If you buy anything in the UAE — a phone, a restaurant meal, a hotel room — the price you see usually already includes 5% VAT. Value Added Tax has applied to most goods and services in the UAE since 1 January 2018, under Federal Decree-Law No. 8 of 2017, and it is administered by the Federal Tax Authority (FTA). The tax itself is simple: one flat rate of 5%. What trips people up is the direction of the maths. Adding VAT to a net price and stripping VAT out of an inclusive total are two different calculations, and mixing them up is the most common invoicing mistake in the country. Both use a single number: 1.05.
The formula for adding VAT
When a price is quoted before tax — a net price — the VAT is 5% of that price, and the total is the price plus the VAT:
VAT amount = net price × 0.05
Total including VAT = net price × 1.05
So a service quoted at AED 1,000 before VAT carries AED 50 of VAT (1,000 × 0.05) and costs AED 1,050 in total. A business invoice for AED 10,000 of work carries AED 500 of VAT and totals AED 10,500. The 1.05 shortcut does both steps at once: multiply any net price by 1.05 and you have the price your customer actually pays.
Worked example: adding VAT to an invoice
Imagine you run a small design studio in Dubai and quote a client AED 4,000 for a website, before tax. VAT = 4,000 × 0.05 = AED 200. Total on the invoice = 4,000 + 200 = AED 4,200. That AED 200 is output VAT: you collect it from your client on the FTA's behalf, it is not your money to keep, and it goes on your VAT return. Try your own numbers in our free VAT Calculator — it adds or removes VAT instantly at UAE, Saudi, Bahrain, Oman and UK rates.
Removing VAT from a price that already includes it
Shelf prices in the UAE usually already include VAT, so the reverse calculation is the one shoppers and bookkeepers need most. The formula is division, not subtraction:
Net price = total including VAT ÷ 1.05
VAT amount = total − net price
A laptop priced at AED 1,050 including VAT costs AED 1,000 before VAT (1,050 ÷ 1.05), and AED 50 of the price is VAT. The mistake to avoid is subtracting 5% from the total: 1,050 × 0.95 = AED 997.50, which is wrong, because the 5% was charged on the net price, not on the total. If you reclaim input VAT on business purchases, using the wrong method quietly overstates your claim.
What is zero-rated and what is exempt?
Not everything carries 5%. Two categories sit outside the standard rate. Zero-rated supplies are taxed at 0%: exports of goods and services, international transport, healthcare and education are the main ones. A business making zero-rated supplies charges no VAT but can still reclaim the input VAT it paid on its own purchases. Exempt supplies carry no VAT either — residential rent and certain financial services are the common examples — but an exempt business cannot reclaim input VAT on related costs. Everything else — retail, restaurants, hotels, professional services, commercial rent — is standard-rated at 5%. If a supply sits in a grey area, check current rates with the FTA before invoicing.
Input VAT vs output VAT: what a business actually pays
VAT-registered businesses act as collection agents for the FTA. The VAT you charge customers is output VAT; the VAT you paid on business purchases is input VAT. What you owe the FTA is the difference:
VAT payable = output VAT − input VAT
For example, if you sold AED 100,000 of services in a tax period, your output VAT is AED 5,000. If you paid AED 2,000 of VAT on business purchases in the same period, your VAT payable is AED 3,000. If input VAT is ever larger than output VAT, the FTA owes you a refund instead. This is why keeping VAT invoices for every business purchase matters — without them, you cannot reclaim the input VAT.
Who must register, and how filing works
Registration is mandatory once a business's taxable supplies and imports exceed AED 375,000 in a 12-month period. Smaller businesses may register voluntarily. Registration, invoicing and filing all run through the FTA's EmaraTax portal (tax.gov.ae): registered businesses file a VAT return for each tax period and pay any net VAT due within 28 days after the period ends. Late filing and late payment attract penalties, so the return deadline matters as much as the calculation itself. Keep your VAT invoices and records for every period — the FTA can audit them.
VAT elsewhere in the Gulf
The UAE's 5% is the lowest standard rate in the region. Saudi Arabia charges 15% (raised from 5% in July 2020), Bahrain charges 10% and Oman charges 5%. Qatar has not introduced VAT yet. If you invoice across the Gulf, the rate follows where the supply is made, not where your office sits — so the same AED 1,000 service carries AED 50 of VAT in the UAE but SAR 150 in Saudi Arabia. Our VAT Calculator has all four Gulf rates built in, plus the UK's 20%.