If you already know VAT is charged at 5 percent, this guide picks up from there. It works through the calculations that trip up otherwise VAT-literate businesses: reverse charge on imports and specific domestic supplies, the exact VAT payable formula, refund mechanics through EmaraTax, import VAT on the full landed value, mixed supplies and partial exemption, and the records an FTA audit actually checks. Every section carries a worked example with real numbers, and we have flagged the 2025 and 2026 rule changes, the end of self-invoicing, the five-year refund limit, and the new scrap metal reverse charge, so you are applying what is current rather than what was true a year ago.
This guide from BCL Globiz reflects the calculations and questions we work through for clients filing VAT returns across the UAE every quarter.
Reverse Charge Mechanism (RCM)
In a normal sale, the supplier charges VAT and pays it to the FTA. The reverse charge mechanism flips that: the buyer accounts for the VAT instead of the supplier. It is governed by Article 48 of Federal Decree-Law No. 8 of 2017. The buyer records the same amount as both output VAT (tax owed) and input VAT (tax reclaimable, if eligible). For a fully taxable business this usually nets to zero cash, but it must still be reported correctly.
RCM on imported services
When you receive a service from a supplier based outside the UAE, for example overseas legal advice, foreign digital marketing or a software subscription, the foreign supplier does not charge UAE VAT. If you are VAT registered, you self-account for 5 percent under RCM.
| Worked example: imported service You buy consulting from a firm abroad for AED 100,000. Output VAT (self-charged): AED 100,000 x 5 percent = AED 5,000. Input VAT (reclaimable if fully taxable): AED 5,000. Net cash effect: AED 0, but both lines must appear in your return. |
RCM on imported goods
For goods brought into the UAE, a VAT registered importer self-accounts for the import VAT through the return rather than paying it at the border. This is why import VAT for registered businesses is effectively a reporting entry rather than an upfront cash cost. Non registered importers, by contrast, pay VAT at the point of clearance.
RCM has also been extended to certain domestic business to business supplies to reduce fraud. Supplies of ferrous and non ferrous scrap metal between registered businesses became subject to RCM from 14 January 2026 under Cabinet Decision 153 of 2025. Other categories such as hydrocarbons, certain electronic devices for resale and precious metals also fall under domestic RCM rules. Always check the latest Cabinet decisions before applying the treatment.
2026 update: self-invoicing no longer required
| What changed Businesses used to create an internal self-invoice for every RCM transaction. Under the 2025 VAT amendments, that self-invoicing step has been removed. You now retain the supplier invoice or customs documentation instead. Keep those records ready: the FTA can still ask to see them during an audit. |
VAT Payable: Formula and Worked Example
VAT payable is what you send to the FTA for a tax period. It is the difference between the VAT you collected on sales (output VAT) and the VAT you paid on eligible purchases (input VAT, also called the input tax credit).
| VAT payable formula VAT Payable = Output VAT (on sales) minus Input VAT (on eligible purchases) If the result is positive, you pay the FTA. If the result is negative, you have excess input tax that can be refunded or carried forward. |
| Item | Amount (AED) |
| Sales for the period (net) | 500,000 |
| Output VAT at 5 percent | 25,000 |
| Eligible purchases (net) | 300,000 |
| Input VAT at 5 percent | 15,000 |
| VAT payable (25,000 minus 15,000) | 10,000 |
Remember that input VAT is only recoverable when you hold a valid tax invoice, you intend to pay the supplier, and the cost relates to a taxable business activity. Blocked items such as certain entertainment and personal use vehicles cannot be claimed, even with a valid invoice.
VAT Refund: When It Applies and How to Claim
When a refund applies
A refund position arises when your input VAT for a period is greater than your output VAT, leaving excess recoverable tax. This is common for exporters and other businesses with large zero-rated sales, and for businesses in a heavy investment phase where purchases outweigh sales.
How to claim through EmaraTax
- File your VAT return in EmaraTax. The system calculates whether input VAT exceeds output VAT for the period.
- If there is excess recoverable tax, you choose to request a refund or carry the balance forward against future liabilities.
- To claim, complete Form VAT311 in the EmaraTax refund section. Your TRN and excess amount are pre-filled.
- Attach supporting evidence: your largest purchase invoices, proof of payment and a validated bank IBAN letter.
- Track the status in EmaraTax. If a claim is rejected, you can submit a reconsideration request, generally within 40 business days.
The five-year limit and transitional relief
| Do not let credits expire From 1 January 2026, excess input tax must be claimed within five years of the relevant tax period. Credits older than that lapse permanently, even if correctly recorded. A transitional window lets businesses recover eligible legacy credits from the early VAT years, but the claim must be filed before 31 December 2026. If you have been carrying forward old credits, review them now. |
VAT on Imports: CIF Value Plus Customs Duty
Import VAT is not charged only on the price of the goods. It is charged on the full landed value. The base is the CIF value (Cost, Insurance and Freight to the UAE port of entry), plus any customs duty, plus excise tax where it applies.
| Import VAT formula Customs Duty = CIF Value x Duty Rate (5 percent for most goods) Import VAT = (CIF Value + Customs Duty + Excise if any) x 5 percent |
| Step | Amount (AED) |
| Goods cost | 100,000 |
| Freight | 7,000 |
| Insurance | 1,000 |
| CIF value | 108,000 |
| Customs duty at 5 percent | 5,400 |
| VAT base (CIF + duty) | 113,400 |
| Import VAT at 5 percent | 5,670 |
Duty rates are not universal. Most general cargo is 5 percent, many essential goods are 0 percent, and some products such as tobacco carry far higher rates. Classification under the correct HS code drives the outcome, so accuracy here protects both your duty cost and your VAT base. A VAT registered importer recovers the import VAT through the return, which is why correct classification and clean records matter for cash flow, not just compliance.
VAT on Discounted Items and Advance Payments
Discounts
VAT is charged on the amount actually paid after a genuine discount, not on the original list price. If an item listed at AED 1,000 is sold at a 20 percent discount, VAT is 5 percent of AED 800, which is AED 40, making the total AED 840. The discount must be real and reflected on the invoice.
Advance payments and deposits
VAT becomes due at the earlier of these events: when payment is received, when a tax invoice is issued, or when the supply takes place. So an advance payment can trigger VAT before the goods or services are delivered.
- Advance payments: VAT is due on the amount received, not the full contract value. The balance is taxed as later payments come in or the supply completes.
- Refundable deposits: A genuine, fully refundable security deposit that is not consideration for a supply may not attract VAT until it is applied against an actual supply.
Getting the advance versus deposit distinction right is one of the details FTA auditors look at closely, so document the nature of each payment clearly.
Mixed Supplies and Partial Exemption
What counts as a mixed supply
A business makes mixed supplies when it has both taxable supplies (standard-rated or zero-rated) and exempt supplies. A common case is a property company that leases commercial units (taxable) and residential units (exempt). Because VAT on costs tied to exempt activity is not recoverable, such a business cannot simply reclaim all of its input VAT. This is where partial exemption applies.
Input tax apportionment
Sort every cost into one of three buckets:
- Wholly taxable costs: directly linked to taxable supplies. Input VAT is fully recoverable.
- Wholly exempt costs: directly linked to exempt supplies. Input VAT is not recoverable.
- Residual costs: shared overheads such as rent and utilities. These are apportioned.
The default is the standard turnover-based method. The recoverable share of residual input VAT equals taxable supplies divided by total supplies. If taxable supplies are 70 percent of total revenue, you recover 70 percent of residual input VAT. If the standard method does not give a fair result, you can apply to the FTA for a special method such as an outputs-based, transaction-count, sectoral or floorspace approach. Special methods need FTA approval and are generally open to businesses registered for at least six months.
Tax Invoice Requirements and TRN Rules
The Tax Registration Number (TRN)
A TRN is the 15-digit number the FTA issues on VAT registration. It is the link between your business and its tax records. The supplier TRN is mandatory on every tax invoice. You should verify a customer or supplier TRN using the FTA verification tool before relying on it, because you should not pay VAT to a party that cannot provide a valid tax invoice.
Full vs simplified tax invoices
| Feature | Simplified invoice | Full tax invoice |
| When used | Supplies of AED 10,000 or less, or non-registered buyers | Business to business supplies above AED 10,000 |
| Buyer name, address, TRN | Not required | Required |
| Words Tax Invoice | Required | Required |
| Supplier TRN | Required | Required |
| Line-item breakdown | Simplified | Full net, VAT rate and amount per line |
Core rules apply to all tax invoices: the words Tax Invoice must be shown, invoices should carry a unique sequential number, the VAT amount must be stated in AED even for foreign-currency deals, and invoices should be issued within 14 days of the supply. Invoices can be in English, but the FTA may request an Arabic version, so bilingual templates are safer. Note also that structured e-invoicing is being rolled out across 2026 and 2027, so it is worth designing invoice templates that can convert cleanly to the electronic format.
Free Zone and Designated Zone VAT Treatment
Designated zones vs ordinary free zones
Not every free zone gets special VAT treatment. Only zones named by the Cabinet as Designated Zones qualify, and only where they meet strict conditions such as secure boundaries and customs controls. These are listed under Cabinet Decision No. 59 of 2017 and its amendments. Well known examples include Jebel Ali Free Zone (JAFZA) and Khalifa Industrial Zone (KIZAD). Always check the current FTA list before applying the treatment, since the list and effective dates can change.
How supplies are treated
- A Designated Zone is treated as outside the UAE for VAT on goods in defined situations.
- Movement of goods between two Designated Zones can be outside the scope of VAT if customs suspension conditions are met and the goods are not used or altered in transit.
- Moving goods from a Designated Zone into mainland UAE is treated as an import, so import VAT becomes due.
- Services supplied within a Designated Zone are generally subject to normal UAE VAT rules, even though goods may not be.
- Certain items such as water and energy, and goods consumed within the zone, follow specific rules rather than the general goods treatment.
The practical takeaway: a Designated Zone can defer VAT on goods, but it does not remove your registration, filing and documentation obligations.
Record-Keeping Checklist for Audit Readiness
The FTA can review your records for several years, and a clean file is the fastest way through an audit. Keep the following ready:
- Tax invoices issued and received, each with a valid TRN and sequential numbering.
- Credit notes, debit notes and any corrections to invoices.
- Import and export documentation, including customs declarations and CIF values.
- Supplier and customs records for reverse charge transactions, now that internal self-invoices are no longer required.
- Your VAT returns and the workings that support each box, including any refund claims on Form VAT311.
- The apportionment method and calculations if you make mixed supplies.
- Proof of payment such as bank statements matching invoices, especially for input VAT claims.
- A validated bank IBAN letter if you expect to claim refunds.
- Records retained for the full period required under the Tax Procedures Law, stored so they can be produced quickly.
How BCL Globiz Helps You Stay Compliant
The calculations above are straightforward once the rules are clear, but the cost of small errors adds up quickly across hundreds of invoices and multiple tax periods. As a Dubai based accounting and tax firm that files VAT returns for clients across the UAE every quarter, BCL Globiz works with these rules daily and builds its guidance around the exact questions clients ask.
Where BCL Globiz can support you:
- VAT registration and deregistration handled end to end.
- Accurate quarterly VAT computation and return filing through EmaraTax.
- Reverse charge and import VAT mapped correctly to the right return boxes.
- Refund claims prepared and submitted on Form VAT311, with follow-up until the refund is received.
- Partial exemption reviews and special method applications for mixed-supply businesses.
- Audit-ready record keeping and VAT health checks before the FTA looks.
Reach out to us at info@bcl.ae
