VAT Refund For Companies In The UAE: Eligibility, Process, and Timelines

In the UAE, the fastest way to damage working capital is to treat VAT as “just another formality”. Since the introduction of 5% VAT in 2018, VAT has become a routine part of operating in the UAE. Many businesses, particularly exporters, traders, and companies in their early investment phase, operate in periodic refund positions as input VAT exceeds output VAT.

VAT refunds for companies, however, are not automatic. Excess input VAT must first be reported in the VAT return and then claimed through a separate refund request with the Federal Tax Authority (FTA). While the FTA’s service benchmark is up to 20 business days, the actual timeline depends largely on how clean the filings are and whether the supporting records reconcile without questions.

For most founders, the real challenge is not eligibility but execution. If returns are filed late, invoices don’t meet FTA requirements, or accounting and VAT numbers don’t align, the refund process slows down and working capital stays tied up longer than planned. Meydan Free Zone supports this through mPlus, which manages VAT compliance from registration to return filing and documentation preparation.

This guide explains when companies qualify for VAT refunds, how the process works, and what founders should factor into their cash flow planning. ‍

When Companies Become Eligible For VAT Refunds

A VAT refund arises when recoverable input VAT exceeds payable output VAT for a tax period.

Input VAT is the VAT paid on business purchases. Output VAT is the VAT charged on taxable sales. When input VAT is higher (after adjustments), the excess becomes recoverable VAT, either carried forward or claimed as a cash refund.

Common scenarios include:

• Export businesses with zero-rated supplies and ongoing local costs
• New businesses during setup, fit-out, and early hiring
• Inventory-heavy trading where import VAT is paid upfront
• Capital expenditure on equipment, technology, and premises
• Project-based work with front-loaded costs and later billing

Operationally, many businesses remain in a refund position for the first 6–18 months while costs lead revenue.  

In practice, businesses typically request a refund once the excess balance reaches around AED 10,000 or more, while smaller amounts are often carried forward. ‍

VAT Registration Thresholds in the UAE

VAT refunds are available only to VAT-registered businesses.

• The mandatory VAT registration threshold is AED 375,000 in annual taxable supplies.  
• The voluntary registration threshold is AED 187,500.  

Those figures matter because voluntary registration is often the difference between “VAT trapped in costs” and “VAT recoverable” during the investment phase.

Voluntary registration is commonly used by:

• Startups with heavy early spending on software, marketing, and professional fees
• Capital-intensive businesses with equipment or fit-out costs
• Export-led companies that expect zero-rated revenue but local VAT on inputs

If the business is eligible to register and chooses not to, the cash impact is simple: VAT becomes a cost until registration starts and recovery rules are met.

VAT and Free Zone Businesses

Operating in a free zone does not automatically place a business outside the VAT system.

Most free zone companies must register for VAT if they meet the same thresholds, and the refund rules are broadly the same as mainland businesses. Special VAT treatment applies only to specific Designated Zones, and even then, VAT treatment depends on the transaction (goods, services, local supply, export), not the postcode.

Founders should keep it structural: treat VAT as a federal system with consistent rules, then map the company’s actual trading flows, especially imports, re-exports, and where title transfers. Meydan Free Zone is a non-designated free zone, which means standard UAE VAT rules apply. ‍

VAT Refund vs Carry Forward: A Cash Flow Decision

Excess VAT does not have to be refunded immediately. Once a VAT return shows a recoverable balance, businesses can either carry it forward or request a refund.

Carry forward

• Offsets future VAT liabilities
• Reduces the need for FTA interaction
• Suitable for businesses with regular taxable sales and ongoing VAT payments

This approach works well for service companies or retailers that expect output VAT in the next period.

Request a refund

• Improves immediate working capital
• Suitable when the business expects to remain in a refund position
• Requires submission of a refund application (VAT311) and triggers FTA review

This option is typically used by:

• Export-led businesses making zero-rated supplies
• Trading companies building inventory ahead of sales
• New businesses in the setup or expansion phase
• Companies that have incurred large capital expenses such as fit-outs, equipment, or technology

For example, an equipment trading business that imports goods worth AED 2 million will incur around AED 100,000 in input VAT. If those goods are exported or sold later, that amount remains recoverable until a refund is claimed or future output VAT offsets it.

The decision depends on cash flow needs, expected future VAT, and the quality of supporting records. ‍

VAT Refund Process in the UAE

Refunds are processed only after the excess position is reported and a formal request is submitted.

At a process level, it runs like this:

1. File the VAT return (VAT201)

The return must show excess recoverable VAT. ‍

2. Submit the refund request (VAT311)

A separate refund application is submitted through the FTA portal. ‍

3. FTA review and verification

The authority reviews the claim and may request supporting documents or clarifications. ‍

4. Approval and payment

Once approved, the refund is transferred to the company’s registered bank account.

Operational requirements are essential for processing:

• An active TRN with consistent entity details
• A verified bank account in the same legal entity name
• No unresolved compliance issues (late filings, penalties, missing returns)

Documentation and Audit Expectations

VAT refunds are reviewed, not automatically issued.

The FTA typically verifies:

• Valid tax invoices that meet FTA requirements
• Supplier TRN details
• Proof of payment
• Import or export documentation where relevant
• Reconciliation between accounting records and VAT returns
• Eligibility of input VAT claimed

Higher-risk situations include first-time refund claims, newly registered businesses, and large refund amounts. Claims above approximately AED 50,000 to AED 100,000 are more likely to undergo detailed review.

Understanding VAT Refund Timelines

Processing time depends on the size of the claim, the business’s compliance history, and the quality of supporting records.

The FTA service standard allows up to 20 business days for initial review.

In practice:

• Clean, low-risk claims are often processed within 2 to 4 weeks
• Claims requiring additional verification may take 4 to 8 weeks or longer

Common Reasons VAT Refunds Are Delayed or Rejected

Most refund delays are caused by preventable compliance issues.

Common problems include:

• Missing or incorrect tax invoices
• Claiming non-recoverable VAT (such as certain entertainment or personal expenses)
• Mismatches between accounting records and VAT returns
• Incorrect or unverified bank details
• Late VAT filings
• Failure to respond to FTA information requests

These issues can also lead to administrative penalties under the Federal Tax Authority (FTA) framework. Key penalties include:

• Late VAT return filing: AED 1,000 for the first offence, AED 2,000 for repeated offences within 24 months
• ‍Late VAT payment: 2% of the unpaid tax immediately after the due date, an additional 4% if unpaid after seven days, and a 1% monthly penalty starting one month after the due date (capped at 300% of the unpaid amount).
• ‍Failure to keep required records: AED 10,000 for the first offence, AED 50,000 for repeat violations
• ‍Failure to submit requested information to the FTA: AED 1,000 for the first offence, AED 2,000 for repeated offences

How Meydan Free Zone Supports VAT Refund Filing  

For many businesses, VAT refunds are delayed not because of eligibility, but because of late filings, errors, or incomplete records.  

Through Meydan Plus (mPlus), Meydan Free Zone helps founders manage the VAT process so businesses don’t have to handle the technical work themselves.

This includes:

• Preparing and submitting VAT returns (VAT201)
• Ensuring accurate reporting of sales, expenses, and recoverable VAT
• Identifying refund positions and preparing refund requests (VAT311)
• Monitoring filing and payment deadlines to avoid penalties
• Supporting documentation and responses if the Federal Tax Authority requests clarification

For founders and lean teams, this keeps VAT filings accurate and on time, reduces compliance risk, and helps ensure recoverable VAT moves through the system without unnecessary delays. ‍

In Conclusion

In the UAE, VAT refunds are straightforward in principle. The real impact shows up in timing.

At a 5% VAT rate, the numbers add up quickly. A trading business importing AED 3 million of goods carries AED 150,000 in recoverable VAT. A startup spending AED 2 million on fit-out, technology, and operating costs ties up another AED 100,000. If refunds are delayed by even one or two reporting cycles, that is working capital sitting outside the business when it could be funding inventory, payroll, or growth.

Meydan Free Zone supports businesses with VAT registration, accurate return filing, and refund preparation, helping founders stay compliant, avoid penalties, and keep recoverable VAT moving through the system.

In practice, the businesses that treat VAT as an operational discipline, not an afterthought, are the ones that keep their cash working where it matters most.