Value Added Tax in Dubai

Value Added Tax in the UAE Free Zones

Certain transactions of goods between companies located in the UAE Free Zones are not subject to VAT. However, the provision of services within the free zones is subject to VAT.

The Formation of VAT Groups in the UAE

The formation of VAT groups is permitted in the UAE, provided that certain conditions are met. Our tax advisors will be happy to provide you with detailed information on this topic.

Input Tax Credit for VAT in the UAE

In the UAE VAT system, businesses can recover the VAT they pay on goods and services used for their business activities. This is known as Input Tax Credit (ITC) or input VAT recovery.

In simple terms: if you charge 5% VAT to your customers (output VAT) and you have paid 5% VAT on your business expenses (input VAT), you can deduct the input VAT from the output VAT. You only pay the difference to the Federal Tax Authority.

Basic principle: VAT payable = Output VAT – Input VAT

If your input VAT exceeds your output VAT, you may carry the balance forward or apply for a refund, subject to the applicable rules.

Conditions for Claiming Input VAT

To recover input VAT in the UAE, the following conditions must generally be met:

• the expense must be directly related to taxable business activities
• the VAT must have been correctly charged by a VAT-registered supplier
• a valid tax invoice must be available
• the goods or services must not fall under blocked or restricted categories, such as certain entertainment expenses depending on the circumstances

Input VAT cannot be recovered on expenses that relate to exempt supplies or non-business activities. Proper documentation and compliance with UAE VAT regulations are essential to secure the right to deduct input VAT. As always, individual situations may vary, and professional advice should be sought to ensure full compliance with UAE VAT law.