TRW & Co · VAT
How to Calculate VAT in the UAE: Formulas, Rounding and Worked Examples
How to calculate VAT in UAE comes down to four formulas: add 5% to a net price, extract VAT from a gross price with 5/105, net output against recoverable input VAT, and apportion shared costs if you make exempt supplies. This guide works through each with figures, then covers rounding, contracts and the 2026 to 2028 rule changes.
Key pointThe VAT fraction for a VAT-inclusive price is 5/105, not 5%. And for businesses with exempt income, the standard apportionment method switches from an input-tax basis to an output-based ratio for tax years starting after 1 October 2027.
At a glance
Standard rate
UAE VAT is charged at 5% on standard-rated supplies across all seven emirates, the free zones and the DIFC and ADGM, with zero-rating and exemptions for listed supplies.
Inclusive price formula
To find the VAT inside a VAT-inclusive price, multiply the gross amount by 5/105. Taking 5% of the gross figure overstates the tax.
Return deadline
VAT returns are normally filed quarterly through EmaraTax within 28 days of the end of each tax period, netting output VAT against recoverable input VAT.
2026 legal changes
Since 1 January 2026, reverse-charge self-invoices are no longer required and refunds of excess credits are subject to a five-year limit under the amended laws.
New apportionment method
Cabinet Decision No. 149 of 2026 moves partial exemption to an output-based ratio from the first tax year starting after 1 October 2027.
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The short answer: how to calculate VAT in UAE
To work out how to calculate VAT in UAE for a standard-rated sale, multiply the VAT-exclusive price by 5%. To extract the VAT from a VAT-inclusive price, multiply the gross amount by 5/105 (roughly 4.7619%). Your payable VAT for a period is the output VAT on your sales minus the input VAT you are entitled to recover on purchases, imports and reverse-charge services.
The arithmetic is simple. The legal questions sit around it: whether a supply is standard-rated, zero-rated, exempt or outside scope; whether the price you agreed is deemed to include VAT; how to round on invoices; which input VAT is blocked; and how much residual input VAT a business with exempt income can recover. This guide works through each with worked figures, current as of October 2026, including the January 2026 VAT amendments and the apportionment changes announced in September 2026.
Bookkeeping, VAT return preparation and tax agent work are delivered with our group company A&A Consultancy. TRW & Co covers the legal and regulatory side: classification, contract wording, FTA correspondence, audits and disputes.
The legal framework behind every VAT calculation
UAE VAT is imposed by Federal Decree-Law No. 8 of 2017 on Value Added Tax and its Executive Regulation, Cabinet Decision No. 52 of 2017. Procedure, records, audits and penalties sit in Federal Decree-Law No. 28 of 2022 on Tax Procedures. The Federal Tax Authority (FTA) administers the tax through the EmaraTax portal, and the texts are in the FTA legislation library.
Three recent instruments change how the numbers work in practice:
- Federal Decree-Law No. 16 of 2025, in force from 1 January 2026, amended the VAT Law. Among other changes, businesses no longer issue self-invoices for reverse-charge supplies, and the FTA can deny input VAT linked to a tax evasion arrangement where the buyer knew or should have known of it.
- Federal Decree-Law No. 17 of 2025, also from 1 January 2026, amended the Tax Procedures Law, including five-year limits on claiming refunds and credit balances, with a transitional window for older balances.
- Cabinet Decision No. 149 of 2026, issued in September 2026, amends the Executive Regulation. Most changes apply from 1 October 2026, but the new input tax apportionment method applies only from the first tax year starting after 1 October 2027.
VAT is federal. The same rate and the same calculation apply in Dubai, Abu Dhabi and the other emirates, in mainland and free zone businesses, and in the DIFC and ADGM. Only certain "designated zones" have special rules for goods. Our overview of VAT in the UAE explains the wider regime.
The core formulas, with worked figures
Almost every question about how to calculate VAT in UAE reduces to one of four formulas, which the FTA's VAT pages and guides apply throughout. The table doubles as a quick calculator: replace the sample figures with your own.
| What you need | Formula | Worked example |
|---|---|---|
| VAT on a net (exclusive) price | Net price × 5% | AED 2,000 × 5% = AED 100 VAT; gross AED 2,100 |
| Gross price from a net price | Net price × 1.05 | AED 2,000 × 1.05 = AED 2,100 |
| VAT inside a gross (inclusive) price | Gross price × 5/105 | AED 2,100 × 5/105 = AED 100 |
| Net price from a gross price | Gross price ÷ 1.05 | AED 2,100 ÷ 1.05 = AED 2,000 |
| VAT payable for a period | Output VAT − recoverable input VAT | AED 48,000 − AED 31,500 = AED 16,500 payable |
A common mistake is to take 5% of a VAT-inclusive figure. Five per cent of AED 2,100 is AED 105, which overstates the VAT by AED 5. The correct "VAT fraction" for a gross amount is 5/105, not 5/100.
Zero-rated, exempt and out-of-scope supplies
Zero-rated supplies, such as qualifying exports and international transport, carry VAT at 0%: the VAT line is nil, but the supply is still taxable, so related input VAT is recoverable. Exempt supplies, such as residential rent after the first supply and certain financial services, carry no VAT and block recovery of the related input VAT. Out-of-scope transactions, such as wages, do not appear in the output figure at all. Classifying each revenue line correctly matters more than the percentage, and it is the first step in learning how to calculate VAT in UAE returns that survive an audit.
Inclusive prices, contracts and the "silent price" trap
Article 38 of the VAT Law requires prices for taxable supplies to be advertised and displayed inclusive of VAT, with limited exceptions in the Executive Regulation, for example for exports and for supplies to VAT-registered businesses where the exclusion is clearly stated. For retailers, the first lesson in how to calculate VAT in UAE is that a consumer-facing shop, gym or restaurant must show the gross price and back-calculate its VAT using the 5/105 fraction.
Business-to-business contracts carry a separate risk. Where a contract quotes a fee without saying whether VAT is added, the supplier may find that the agreed price is treated as including VAT, leaving it to fund the 5% out of its margin. A clause stating that prices are exclusive of VAT, which the customer will pay on receipt of a valid tax invoice, is one of the cheapest protections available. Our page on commercial contracts in the UAE covers tax clauses more generally.
When you renegotiate long-term contracts, check the VAT clause before the price. A supplier that signed a "silent" contract has effectively agreed to a price 4.76% lower than it thought. Fixing that wording at renewal is a commercial negotiation, not just a compliance point.
Tax invoices, rounding and foreign currency
A full tax invoice must show, among other details, the supplier's tax registration number, the rate of VAT and the VAT amount payable in UAE dirhams. Simplified tax invoices are allowed for retail sales and certain lower-value supplies. Our guide to the UAE tax registration number explains how TRNs are validated.
Rounding
Dirham amounts run to two decimal places (fils), and VAT should be stated to the fils. The legislation does not prescribe a single method of rounding for commercial invoices, so accounting systems differ: some calculate VAT on each line and round, others calculate on the invoice total. Either can produce small differences, and no guide on how to calculate VAT in UAE can remove them entirely. The safe approach is to choose one method, apply it consistently across invoices, credit notes and returns, and be able to explain and reconcile any differences if the FTA asks.
Foreign-currency invoices
Where an invoice is issued in a foreign currency, the VAT amount must still be shown in dirhams, converted at the exchange rate approved by the Central Bank of the UAE on the date of supply. Using a bank's own rate or a month-end rate can create differences between the sales ledger and the return.
Output VAT, input VAT and the return
Most businesses file quarterly returns within 28 days of the end of each tax period, although the FTA can set monthly periods. Each return nets output VAT against recoverable input VAT. Where input exceeds output, the excess is a credit that can be carried forward or claimed as a refund, now within the five-year limits introduced from 2026.
- Classify every revenue line. Map each product and service to standard-rated, zero-rated, exempt or out of scope, and record the reason.
- Total output VAT by emirate. The return reports standard-rated supplies by emirate of the supplier's establishment, so sales must be tagged by location.
- Add reverse-charge VAT. Imported services and goods subject to the reverse charge are declared as output VAT and, where recoverable, claimed back as input VAT in the same return. See our guide to the reverse charge in the UAE.
- Collect valid input VAT. Only VAT supported by a valid tax invoice or import record, and related to taxable activity, can be recovered.
- Remove blocked items. Entertainment for non-employees, motor vehicles available for private use and certain employee benefits are blocked.
- Apportion residual input VAT. If you make exempt supplies, recover only the taxable share of overhead VAT (see the next section).
- Reconcile and file. Reconcile the return to the general ledger and bank, then file and pay through EmaraTax by the deadline.
Our article on VAT returns and input VAT recovery covers the recovery conditions and the supplier verification duties in force since 1 October 2026.
Partial exemption: calculating recoverable input VAT
A business that makes both taxable and exempt supplies, such as a landlord with commercial and residential units or a financial services firm, splits its input VAT into three pots: VAT directly attributable to taxable supplies (fully recoverable), VAT directly attributable to exempt supplies (not recoverable) and residual VAT on shared costs such as rent, audit fees and IT. Only the residual pot needs a formula.
The current standard method
Until the new rules take effect, the standard method in the Executive Regulation is input-tax based. The recovery percentage is recoverable directly attributable input VAT divided by total directly attributable input VAT (recoverable plus non-recoverable). That percentage is applied to residual VAT each period, followed by an annual adjustment that recalculates the year as a whole. The FTA can approve a special method where the standard method gives a distorted result.
The new standard method from tax years starting after 1 October 2027
Cabinet Decision No. 149 of 2026 replaces the input-tax basis with an output-based method. The recovery percentage becomes the value of supplies that carry a right of recovery divided by the value of all supplies, with supplies of the business's own capital assets and certain reverse-charge receipts excluded. Government entities and charities keep an input-tax based method. For a calendar-year business, the new method first applies to the year starting 1 January 2028.
| Item | Current method (input-based) | New method (output-based) |
|---|---|---|
| Basis | Directly attributable recoverable VAT AED 60,000; non-recoverable AED 40,000 | Taxable supplies AED 4.5m; exempt supplies AED 1.5m |
| Recovery percentage | 60,000 ÷ 100,000 = 60% | 4.5m ÷ 6.0m = 75% |
| Residual VAT on shared costs | AED 20,000 | AED 20,000 |
| Recoverable residual VAT | AED 12,000 | AED 15,000 |
The figures are illustrative only. Depending on its mix of costs and revenue, a business may recover more or less under the new method, so model both now and decide whether a special method application is worth making before the change.
Illustrative scenario: a small Dubai business works through a quarter
This scenario is illustrative; the parties and figures are generic.
A Dubai design studio is VAT-registered and files quarterly. In the quarter it invoices local clients AED 300,000 net, so output VAT is AED 15,000. It also invoices a client in Germany AED 80,000 for services that qualify for zero-rating, so that line carries 0% VAT. It subscribes to software from a US provider for AED 20,000; under the reverse charge it declares AED 1,000 output VAT and recovers AED 1,000 input VAT in the same return.
Its UAE purchases carry AED 9,500 of VAT on valid tax invoices, but AED 700 relates to a client dinner, which is blocked as entertainment. Recoverable input VAT is therefore AED 8,800 plus the AED 1,000 reverse charge. Total output VAT is AED 16,000. Net VAT payable is AED 16,000 − AED 9,800 = AED 6,200.
Had the studio instead taken 5% of the gross receipts it banked, or claimed the dinner, the return would be wrong in both directions. Most of the studio's risk sits in the zero-rating evidence for the German client, not in the arithmetic, which is why knowing how to calculate VAT in UAE starts with classification.
Common mistakes when you calculate VAT in the UAE
Applying 5% to a VAT-inclusive amount
Taking 5% of gross takings overstates output VAT and can lead to over-declaration in one period and an attempted "correction" later. Retailers, restaurants and online sellers who receive gross amounts from card acquirers or platforms should always extract VAT with the 5/105 fraction. Where the platform deducts commission, the commission is a separate purchase with its own VAT, which may be recoverable if a valid tax invoice is issued. Mixing gross receipts with net settlements is the single most frequent arithmetic error in small-business VAT returns.
Treating zero-rated and exempt supplies as the same thing
Both show no VAT on the invoice, but the consequences are opposite. Zero-rated supplies preserve the right to recover input VAT; exempt supplies remove it for related costs and trigger apportionment for shared costs. A business that labels exports as "exempt" may under-claim input VAT, while one that labels residential rent as "zero-rated" will over-claim. Zero-rating also depends on evidence, such as export documents or proof that the customer is outside the UAE, so the supporting file matters as much as the label.
Claiming input VAT without a valid tax invoice
Input VAT is recoverable only where the business holds a valid tax invoice (or import record) and intends to pay the supplier. Proformas, statements and invoices missing the supplier's TRN do not support a claim. Since 1 January 2026 the FTA can also deny input VAT linked to a tax evasion arrangement where the buyer knew or should have known of it, and from 1 October 2026 supplier verification duties apply to larger purchases. Keep the evidence, not just the number.
Forgetting the annual apportionment adjustment
Businesses with exempt income often apply a provisional recovery percentage each quarter and then forget the annual adjustment that trues up the year. The difference can be material, and the FTA checks it on audit. With the new output-based method approaching, finance teams should also prepare data on the value of exempt and taxable supplies by period, which many ledgers do not currently capture cleanly.
Ignoring the cash payment restriction
Cabinet Decision No. 149 of 2026 introduces a rule that will restrict input VAT recovery where consideration above a threshold is paid, or intended to be paid, in cash. The threshold is to be set by a separate ministerial decision. Businesses that routinely settle large purchases in cash, for example in construction or trading, should move those payments to banked methods before the threshold is published.
Cross-border points that change the calculation
Cross-border trade is where how to calculate VAT in UAE becomes less obvious. Imports of goods carry import VAT, normally accounted for through the reverse charge in the return by registered businesses, so it is both declared and recovered rather than paid in cash at the border. Imported services from foreign suppliers follow the same reverse-charge logic. Exports of goods and many services to non-residents are zero-rated if the conditions and evidence requirements are met.
Non-resident businesses selling into the UAE without a fixed establishment may need to register with no threshold where no one else accounts for the tax. Groups that trade across GCC borders should note that VAT rates and rules differ across the GCC states. Our guide to place of supply for services explains how to decide where a service is taxed.
E-invoicing will change the mechanics again: the second phase of the UAE e-invoicing system goes live on 1 July 2027, and government entities follow on 1 October 2027. See our guide to UAE e-invoicing.
What to do next: a checklist
- Map every revenue stream to standard, zero, exempt or out of scope, with the legal basis for each.
- Check that consumer prices are displayed VAT-inclusive and that B2B contracts state whether VAT is added.
- Fix a single rounding method and document it.
- Convert foreign-currency VAT at the Central Bank rate on the date of supply.
- Review blocked costs and employee benefits before each return.
- If you have exempt income, model recovery under both the current and the new apportionment method.
- Move high-value cash payments to bank transfers ahead of the cash payment rule.
- Diarise the five-year limit on refunds and old credit balances.
Getting how to calculate VAT in UAE right is mostly about classification, evidence and consistent systems. For return preparation and bookkeeping, our group company A&A Consultancy can assist; for classification opinions, contract clauses, FTA queries and disputes, contact TRW & Co at info@trw.co or +971 58 942 1012. If an assessment has already been raised, see our page on tax disputes in the UAE.
Frequently asked questions
01How do I calculate 5% VAT on a price in the UAE?
Multiply the VAT-exclusive price by 0.05 to find the VAT, or by 1.05 to find the total price including VAT. For example, a net fee of AED 4,000 carries AED 200 of VAT and a gross price of AED 4,200. The same rate applies in every emirate and free zone. Before applying the rate, check that the supply is standard-rated rather than zero-rated, exempt or out of scope, because that classification decides whether any VAT is due at all.
02How do I work out the VAT included in a total price?
Multiply the VAT-inclusive total by 5/105, which is about 4.7619%. On AED 1,050 the VAT is AED 50 and the net price is AED 1,000. Dividing the gross amount by 1.05 gives the net price directly. Do not take 5% of the gross figure, which overstates the VAT. Retailers and restaurants that must display VAT-inclusive prices under Article 38 of the VAT Law use this calculation for every sale they record.
03How is VAT payable calculated on the VAT return?
VAT payable is total output VAT, including any reverse-charge VAT on imports and imported services, minus input VAT you are entitled to recover. Input VAT must be supported by valid tax invoices or import records, relate to taxable business activity and not fall within the blocked categories such as entertainment for non-employees. If recoverable input VAT exceeds output VAT, the excess is a credit that can be carried forward or refunded, now subject to five-year time limits.
04How should VAT be rounded on UAE invoices?
VAT should be stated in dirhams to two decimal places. The legislation does not prescribe a single rounding method for commercial invoices, so businesses choose between rounding per line and rounding on the invoice total. What matters is consistency across invoices, credit notes and returns, and the ability to reconcile small differences if the FTA asks. Document the method in your VAT procedures and make sure your accounting system applies it automatically.
05How do businesses with exempt income calculate recoverable VAT?
They recover VAT directly attributable to taxable supplies in full, recover none of the VAT attributable to exempt supplies, and apportion residual VAT on shared costs. Until the change, the standard method uses a ratio of recoverable to total directly attributable input VAT, with an annual adjustment. For tax years starting after 1 October 2027, Cabinet Decision No. 149 of 2026 switches the standard method to the value of taxable supplies over total supplies, so modelling both methods now is sensible.
06Do free zone companies calculate VAT differently?
Most free zone companies calculate VAT exactly as mainland businesses do, because VAT is federal and applies across the UAE. The main differences arise for goods in designated zones, where certain movements of goods can fall outside the scope of VAT if strict conditions are met. Services supplied from a free zone are generally taxed in the normal way. DIFC and ADGM entities are not designated zones for these purposes and charge VAT as standard.
Sources and official materials
- Federal Tax Authority: legislation — VAT Law, Executive Regulation, Tax Procedures Law and amendments
- Federal Tax Authority: VAT — FTA VAT overview, guides and clarifications
- Federal Tax Authority: VAT refunds — Refund of excess recoverable VAT
- UAE Government portal: taxation — Official summary of UAE taxes
- Ministry of Finance — Announcements on VAT amendments and Cabinet decisions
General information only, current as at 27 October 2026. It is not legal advice and does not create a lawyer–client relationship. UAE law differs between the onshore jurisdiction, the DIFC, ADGM and the free zones, and changes frequently; check current official sources and take advice on the facts of your matter.
