What is the standard rate of VAT in the UAE in 2025?

The UAE's standard value-added tax (VAT) rate will remain unchanged at 5% in 2025, a conclusion that stems from the official statement of the UAE Ministry of Finance in February 2024-Younis Haji Al Khouri, Deputy Minister of Finance, made it clear at the World Government Summit that "there will be no adjustment to VAT". The tax rate has remained stable since its implementation in 2018, forming the basis of a unified tax system with most GCC countries, only slightly lower than Saudi Arabia's 15% and significantly lower than the global average VAT rate of about 15%, highlighting the UAE's tax advantages in attracting investment.

Core Rules and Scope

1. Standard tax rate: The 5% tax rate covers most trading scenarios such as retail goods, electricity, and public services. For example, when consumers buy electronic products or catering services, they are subject to VAT at this rate.

2. Zero tax rate items:

export goods: When enterprises sell goods outside the UAE, they can apply zero tax rate to enhance their international competitiveness.

International transport services: cross-border logistics, shipping and other transport services are exempt from value-added tax to promote global trade flow.

Specific service areas: services such as education, health care and precious metal investment enjoy zero tax rate to support social livelihood and financial development.

3. Tax-exempt items:

financial services: Some banking, insurance and other financial services are exempt from value-added tax to maintain the stability of the financial system.

Residential real estate transactions: residential rentals and sales are exempt from VAT, reducing residential housing costs.

Corporate tax compliance points

1, mandatory registration threshold:

when the taxable turnover of an enterprise in the past 12 months exceeds 375000 dirhams, VAT registration must be completed. If the turnover is between 187500 and 375000 dirhams, you can choose to register voluntarily to enjoy the deduction benefit in advance.

Declaration and payment process: Enterprises are required to submit VAT returns on schedule and complete tax payment through the electronic payment system. Late declaration will face a fine of dirhams for the initial 1000 and dirhams for each subsequent 2000. Late payment will result in a daily cumulative fine of up to 300 per cent of the tax.

2, input tax deduction mechanism:

the value-added tax (input tax) paid by an enterprise when purchasing goods or services can be deducted from the value-added tax (output tax) collected from the sale of goods at the time of declaration, and only the net portion is required.

Compliance Points and Risk Avoidance

1. Invoice management:

VAT invoices must contain key information such as invoice number, invoice date, name, address and VAT registration number of the seller and purchaser, detailed description of goods or services, quantity, unit price, amount excluding tax, VAT rate and amount, total amount, etc.

Electronic invoices are subject to specific format and security standards and are retained for a period of not less than 5 years.

2. Input tax deduction:

when an enterprise purchases goods or services for taxable business activities, the VAT (input tax) paid is deductible. For example, the input tax corresponding to expenditures such as office equipment purchases and raw material purchases can be deducted if the regulations are met.

Purchase for non-taxable items, private use or tax-exempt items, the input tax is usually not deductible.

3. Record keeping:

enterprises need to properly keep all kinds of records related to VAT, including invoices, accounting vouchers, contracts, financial statements, inventory records, etc., for a period of at least 5 years. These records are the focus of review during the tax audit.

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