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Iakov Kukushkin
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Mar 21, 2025
The UAE introduced Value Added Tax (VAT) on January 1, 2018, at a standard rate of 5% on most goods and services. VAT is a consumption tax applied at each stage of the supply chain, requiring businesses to collect and remit tax to the Federal Tax Authority (FTA).
Companies must comply with specific rules regarding exports and imports.
This article explains how VAT applies to UAE exports and imports, covering Free Zone regulations, compliance penalties, and frequently asked questions.
Companies must comply with specific rules regarding exports and imports.
This article explains how VAT applies to UAE exports and imports, covering Free Zone regulations, compliance penalties, and frequently asked questions.
VAT on exports of goods and services
Zero-rated exports
Exports of goods and services from the UAE to other countries are generally zero-rated for VAT. This means companies can reclaim the VAT they pay on inputs while not charging VAT on their exports.
Exports of goods and services from the UAE to other countries are generally zero-rated for VAT. This means companies can reclaim the VAT they pay on inputs while not charging VAT on their exports.
When can goods be exported with zero VAT?
- You must ship the goods outside GCC countries or put them in customs storage within 90 days after delivery.
- You need to keep all official documents that prove you exported the goods.
- You must follow all FTA (Federal Tax Authority) rules.
Zero-rated export of services
Services can be zero-rated if:
Services can be zero-rated if:
- The recipient is located outside the UAE when the service is delivered.
- The service is not directly connected to UAE property or assets.
- The provider maintains documentation proving the customer's location and service usage outside the UAE.
Export documentation requirements
Businesses need to keep records of:
Businesses need to keep records of:
- Commercial invoices and contracts
- Customs export declarations
- Airway bills or shipping documents
- Proof of payment and recipient details
Failure to maintain proper documentation may result in the application of the standard 5% VAT rate. To ensure compliance, we recommend consulting with a tax professional for advice and auditing services. We're here to help.
VAT on imports of goods and services
When goods and services are imported into the UAE, the importer must pay VAT at 5% — unlike exports. This VAT is collected through the Reverse Charge Mechanism (RCM).
What is the RCM?
The RCM simplifies VAT collection for cross-border transactions by eliminating the need for foreign suppliers to handle VAT.
Through the RCM, importers handle VAT payments on behalf of suppliers and recover it during tax filing. This arrangement means foreign suppliers don't need UAE VAT registration. The recipient reports both input VAT (on purchases) and output VAT (on sales) in their quarterly VAT return.
When it applies:
The RCM simplifies VAT collection for cross-border transactions by eliminating the need for foreign suppliers to handle VAT.
Through the RCM, importers handle VAT payments on behalf of suppliers and recover it during tax filing. This arrangement means foreign suppliers don't need UAE VAT registration. The recipient reports both input VAT (on purchases) and output VAT (on sales) in their quarterly VAT return.
When it applies:
- The place of supply is in the UAE; the supply would be subject to VAT in the UAE
- The supplier is resident outside the UAE
- The recipient is resident in the UAE
- The recipient is registered for VAT in the UAE
How to pay VAT on imports
VAT on imports is usually paid through:
VAT on imports is usually paid through:
- Customs declarations – Import VAT is calculated during customs clearance.
- Tax return filing – Businesses report import VAT on their VAT return and can claim it as input tax.
- VAT deferment scheme – Some businesses are allowed to defer VAT payment to avoid cash flow problems.
Required documents for VAT on imports
- Import declaration form
- Commercial invoice
- Bill of entry
- Proof of payment
- VAT registration certificate
Need help gathering these documents and ensuring correct tax payment? Let's schedule a quick discussion to walk you through the process.
VAT in Free Zones and Designated Zones
The UAE has established Free Zones that provide tax and customs benefits, though VAT regulations vary among these zones.
VAT in Free Zones
- Transactions within the same Free Zone are taxed at 5%.
- Transactions between different Free Zones are subject to VAT.
- For sales to mainland UAE businesses, you must collect VAT.
- International operations are taxed at 0% VAT.
VAT in Designated Zones
What is a Designated Zone?
Designated Zones are special free zones where transactions are exempt from VAT. The most popular Designated Zones are:
Here are the key points about taxation in these zones:
What is a Designated Zone?
Designated Zones are special free zones where transactions are exempt from VAT. The most popular Designated Zones are:
- Jebel Ali Free Zone (JAFZA)
- Dubai Airport Free Zone (DAFZA)
- Abu Dhabi Airport Free Zone
Here are the key points about taxation in these zones:
- Goods moving within a Designated Zone are VAT-exempt.
- When goods leave the Designated Zone for the UAE mainland, a 5% VAT applies.
- Services within Designated Zones are subject to UAE VAT.
- Transactions between Designated Zones are out of scope (0% VAT).
Administrative penalties
Businesses must comply with VAT regulations to avoid these penalties:
- Late VAT registration – AED 10,000 fine
- Failure to file VAT returns – AED 1,000 for the first offense, AED 2,000 for subsequent offenses
- Late VAT payment – 2% penalty on unpaid tax immediately after the due date, plus 4% monthly penalty starting one month after the due date
- Incorrect VAT filing – AED 1,000 for the first offense, AED 2,000 for each subsequent offense
All you need to know about importing under VAT in the UAE (FAQ)
You must register for VAT when your total taxable supplies and imports into the UAE exceed AED 375,000 in the previous 12-month period.
Yes, VAT is applied to all imports, including personal shipments. However, some low-value shipments may be exempt.
Yes, companies can claim VAT paid on imported goods when filing their VAT return, provided they have the necessary documentation.
If you don't pay the import VAT, you could be fined up to AED 10,000. You could also get sued and have your future imports restricted.
Yes, imported goods are subject to VAT under the Reverse Charge Mechanism (RCM). As the UAE-based recipient of the good, your company is responsible for accounting for and paying the VAT.
Some goods, such as medical equipment, educational materials and certain financial services, may be exempt or zero-rated.
Executive Regulation of Federal Decree Law No 8 of 2017
Executive Regulation of Federal Decree Law No 8 of 2017
Qualified businesses can postpone VAT payments on imports until their regular VAT return filing, which helps manage their cash flow more effectively.
No. Free Zones do not have VAT exemptions. However, Designated Zones have special VAT rules that may exempt certain transactions.
Still in doubt? Give us a call and we'll answer your questions and give you the best advice for your case.
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