Tax

 

🇦🇪 UAE Taxes Explained: Simple Guide for New Residents & Businesses (2026)

The United Arab Emirates (UAE) is globally known as a low-tax country, making it attractive for employees, entrepreneurs, and investors. Unlike many countries, the UAE follows a simple and transparent tax system.

Currently, the UAE mainly applies two federal taxes:

• Value Added Tax (VAT)

• Corporate Tax (CT)

This article explains both taxes in a clear, beginner-friendly way, especially for new UAE residents and business owners.

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🔹 Value Added Tax (VAT) in UAE

What is VAT?

Value Added Tax (VAT) is an indirect tax applied to the consumption of goods and services.
It is charged at each stage of the supply chain, but the final cost is borne by the end consumer.

VAT applies only when goods or services are used or consumed within the UAE.

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VAT Rate in the UAE

• The UAE applies a fixed VAT rate of 5%

• This is considered one of the lowest VAT rates in the world

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Who Must Register for VAT?

A business must register for VAT if:

• Annual taxable turnover exceeds AED 375,000 (mandatory registration)

Optional registration:

• Businesses with turnover above AED 187,500 may apply voluntarily

VAT registration is done through the Federal Tax Authority (FTA) online portal.

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How to Register for VAT

To register:

1. Visit the official FTA website

2. Create an account on the FTA portal

3. Submit business details such as:

   • Trade license

   • Business activity

   • Owner or partner details

   • Financial information

4. Upload required documents

5. Receive a Tax Registration Number (TRN) after approval

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VAT Filing and Returns

• VAT returns are usually filed quarterly (some businesses file monthly)

• A VAT return includes:

  • Output VAT (VAT charged on sales)

  • Input VAT (VAT paid on purchases)

• The difference is paid to the FTA or claimed as a refund

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Input VAT Recovery

Input VAT can be recovered if:

• Expenses are related to taxable business activities

• Proper tax invoices are available

• Expenses comply with UAE VAT regulations

Input VAT cannot be recovered if related to non-compliance or tax evasion.

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Reverse Charge Mechanism (RCM)

The Reverse Charge Mechanism applies mainly to:

• Imported services

• Certain goods purchased from outside the UAE

Under RCM:

• VAT is accounted for by the buyer, not the supplier

• This helps simplify international transactions

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Zero-Rated VAT Supplies

Zero-rated supplies are taxed at 0%, but businesses can still recover input VAT.

Common examples:

• Export of goods and services

• International transportation

• Certain healthcare and education services

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VAT Record Keeping

Businesses must maintain:

• Tax invoices and credit notes

• Accounting records

• Bank statements

📌 Records must be kept for at least 5 years.

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VAT Penalties and Compliance

Penalties may apply for:

• Late VAT registration

• Late VAT return filing

• Incorrect VAT returns

• Poor record keeping

From 2026, the UAE is rolling out electronic invoicing (e-invoicing) in phases. Non-compliant invoices may result in additional penalties.

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Recent VAT Updates (Effective 1 January 2026)

Under Federal Decree-Law No. (16) of 2025, the UAE introduced several VAT updates:

• No self-invoicing under reverse charge

• Five-year limit to claim excess VAT credits

• Input VAT denial if linked to tax evasion

• Expanded audit and investigation powers

• More flexibility to correct minor filing errors

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🔹 Corporate Tax in the UAE

Corporate Tax applies to business profits, not personal income.

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Who Needs to Pay Corporate Tax?

Corporate Tax applies to:

• UAE mainland companies

• Free Zone companies (if qualifying conditions are not met)

• Foreign companies with a UAE business presence

• Individuals conducting licensed business activities

❌ Salary and personal income are not subject to corporate tax

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UAE Corporate Tax Rates

• 0% on taxable profits up to AED 375,000

• 9% on taxable profits exceeding AED 375,000

This structure supports small businesses and startups.

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How to Pay Corporate Tax

Steps include:

1. Register for Corporate Tax via the FTA portal

2. Maintain proper accounting records

3. Prepare financial statements

4. Calculate taxable profit

5. File the Corporate Tax return

6. Pay the tax within the due date

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Documents Required for Corporate Tax

• Trade license

• Financial statements

• Bank statements

• Income and expense records

• Audit report (if applicable)

• VAT records (if registered)

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Corporate Tax Penalties

Penalties may apply for:

• Failure to register

• Late return filing

• Incorrect tax declarations

• Failure to maintain records

The FTA may conduct audits to ensure compliance.

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Estimated Tax and Planning

Businesses may need to estimate taxable profits in advance.
Proper tax planning helps:

• Avoid penalties

• Improve cash-flow management

• Maintain compliance

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Minimum and Maximum Corporate Tax

• Minimum rate: 0%

• Standard rate: 9%

• No higher corporate tax slabs currently apply in the UAE

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✅ Final Thoughts

The UAE tax system is business-friendly, transparent, and easy to understand.
By understanding VAT and Corporate Tax, new residents and business owners can stay compliant, avoid penalties, and manage their finances efficiently.

📌 Disclaimer:
This article is for general educational purposes only and does not constitute legal or tax advice. For specific cases, consult a qualified tax professional or refer to the official FTA website.