Detailed Guide of the VAT (Value Added Tax) System in Dubai, UAE (2025)
October 8, 2021
September 23, 2025
June 25, 2025
September 23, 2025
Topic Summary
1. Overview and Applicability of VAT
VAT was introduced in the UAE in January 2018 at a standard rate of 5%. It applies to most goods and services supplied within the country, affecting businesses operating across mainland areas, free zones, and specific designated and non-designated zones. Understanding the scope of VAT applicability is essential for compliance and optimal tax management.
2. VAT in Designated and Non-Designated Zones
Designated zones are treated as outside the UAE for VAT purposes, meaning supplies made within these zones may be zero-rated or exempt. Conversely, non-designated zones are considered part of the mainland for VAT, and standard VAT rules apply. Entrepreneurs must correctly identify the status of their operational zones, such as Meydan Free Zone, to apply VAT rules accurately.
3. Registration Requirements for Businesses
All businesses with taxable supplies exceeding the mandatory registration threshold of AED 375,000 must register for VAT with the Federal Tax Authority. Voluntary registration is permitted for those with supplies between AED 187,500 and AED 375,000. Registration in mainland areas and free zones requires understanding specific conditions linked to the zone’s designation.
4. VAT on International Transactions
Cross-border transactions involving the import and export of goods and services have distinct VAT treatments. Exports of goods and services outside the UAE are generally zero-rated, while imports are subject to VAT at the point of entry. Businesses must maintain robust documentation to support zero-rating or recover input VAT on imports.
5. Filing and Compliance Obligations
Registered businesses must file VAT returns periodically, typically on a quarterly basis, detailing their taxable supplies and input tax recoveries. Maintaining accurate records and timely submission is critical to avoid penalties. Compliance also involves issuing VAT-compliant invoices and understanding obligations specific to operations within mainland or free zones.
VAT in the UAE applies to most goods and services offered across the country.
Introduced in 2018 at a standard rate of 5 percent, VAT affects businesses operating in mainland areas as well as those based in free zones, including Meydan Free Zone.
For entrepreneurs, startups, and SMEs, understanding how VAT applies across designated zones, non-designated zones, mainland, and international transactions is crucial.
Here we break down how the system works, who needs to register, and how VAT applies when trading between different jurisdictions.
VAT Framework in the UAE
Value Added Tax in the UAE is managed by the Federal Tax Authority (FTA). It applies at every stage of the supply chain where value is added, from production to final sale.
The standard VAT rate in the UAE is:
- 5% for most taxable goods and services
- 0% for zero-rated categories such as exports, education, and healthcare
- Exempt from certain financial services and residential rentals
UAE VAT Registration for Businesses
You must complete UAE VAT registration if your business meets one of the following thresholds:
- Mandatory registration: If your taxable turnover exceeds AED 375,000 in the past 12 months or is expected to exceed it in the next 30 days
- Voluntary registration: If your taxable turnover exceeds AED 187,500
At Meydan Free Zone, VAT registration is handled through Meydan Plus for a fee of AED 1,500.
We take care of the entire process on your behalf, from document preparation to submitting your application and securing your Tax Registration Number (TRN).
There’s no need to manage the registration yourself. Our team ensures everything is completed accurately and in line with FTA requirements.
Calculate VAT in the UAE
To understand how to calculate VAT in the UAE, apply the 5% rate to the total invoice value of taxable goods or services.
Formula:
VAT Amount = Invoice Total × 5%
Total Payable = Invoice Total + VAT Amount
For example, if your invoice is AED 10,000, VAT would be AED 500. The client pays AED 10,500.
Use VAT-inclusive or VAT-exclusive pricing depending on your business model and market expectations.
Free Zone VAT Rules: Designated vs Non-Designated Zones
Not all free zones in the UAE are treated equally under VAT law. Zones are divided into:
1. Designated Zones
These zones are treated as being outside the UAE for VAT purposes, but only for goods.
- Goods sold from one designated zone to another: No VAT
- Goods sold from a designated zone to the mainland: 5% VAT applies
- Goods sold from the designated zone to outside the UAE: 0% VAT (export)
- Services offered from a designated zone: Always subject to VAT (5%)
Meydan Free Zone is currently not classified as a designated zone, so standard VAT rules apply.
2. Non-Designated Zones
These zones follow standard VAT treatment.
- Sales to mainland UAE: 5% VAT applies
- Sales to another free zone: 5% VAT applies
- Exports to GCC VAT countries (e.g., Saudi Arabia): 0% VAT, if the buyer is VAT-registered
- Exports to non-GCC countries: 0% VAT
If both parties are in non-designated zones, normal VAT applies.
Invoicing Scenarios Across Zones and Borders
Zero-Rated VAT and Exempt Sectors in the UAE
Some goods and services qualify as zero-rated VAT in the UAE, meaning they are taxed at 0% but still require reporting.
Zero-Rated VAT Categories
- Exports of goods and services
- International transportation
- Some healthcare and education services
- First sale or lease of new residential properties
VAT Exempt Sectors in UAE
These sectors are exempt from VAT and not included in taxable turnover calculations:
- Residential property rental
- Certain financial services (like life insurance or lending)
- Local passenger transport
Process of VAT Return Filing in the UAE
If you're registered for VAT, you're required to submit VAT return filings in the UAE either quarterly or monthly, depending on your tax period.
At Meydan Free Zone, our team manages your VAT return filing through Meydan Plus — so you don’t have to handle calculations, forms, or deadlines yourself.
We prepare and submit your Form 201, ensure accurate reporting of your sales and expenses, and help you stay on top of payment timelines.
Late filings can result in penalties of AED 1,000 fine for first offence, AED 2,000 for repeat offences within 24 months, and 2% penalty on unpaid VAT, plus daily accruals, so having your returns handled professionally helps you avoid costly mistakes.
Eligibility for a VAT Refund in the UAE
Businesses can apply for a VAT refund in the UAE if they have excess recoverable VAT on expenses compared to VAT collected on sales. Common refund situations:
- New businesses with capital expenses
- Export-heavy businesses with 0% VAT sales
- Overpayments or incorrect filings
Refunds are requested through the FTA portal using Form VAT311.
VAT for Free Zone Companies in the UAE
VAT for free zone companies in the UAE depends on:
- Whether the free zone is designated or not
- The location of the customer
- The type of goods or services provided
- Whether the customer is VAT-registered
Meydan Free Zone operates as a non-designated zone, which means all taxable supplies made by companies here are subject to the standard VAT treatment.
FAQs
1. What is the VAT rate in the UAE?
The standard VAT rate is 5% on most goods and services.
2. Who must register for VAT in the UAE?
Any business with a taxable turnover above AED 375,000 must register for VAT. Voluntary registration is allowed from AED 187,500.
3. How can I register for VAT?
VAT registration is handled directly by Meydan Free Zone through our Meydan Plus service. We manage the full process for you, including document submission and TRN issuance.
4. Do free zone companies need to charge VAT?
Yes. Unless the free zone is designated and specific conditions are met, free zone companies — including those in Meydan Free Zone — must charge VAT on taxable supplies.
5. How often do I file VAT returns?
Most businesses file quarterly, though some file monthly depending on their tax period.
6. Can I claim VAT on business expenses?
Yes — as long as the expenses relate to taxable business activities and you hold valid tax invoices. We can help ensure claims are filed correctly.
7. What happens if I miss a VAT filing deadline?
Missing a VAT deadline may result in a AED 1,000 fine, with additional penalties and daily interest on unpaid VAT. Meydan Plus helps you stay compliant and avoid these charges.
8. Are exports from the UAE subject to VAT?
Exports are generally zero-rated at 0%, but must still be reported in your VAT return.
9. What if I sell to Saudi Arabia or another GCC country?
If the buyer is VAT-registered in their country, 0% VAT applies. If not, the standard 5% VAT must be charged.
10. How can Meydan Free Zone help with VAT?
Through Meydan Plus, we manage VAT registration, return filing, and ongoing compliance — so you can focus on running your business.
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