VAT and Corporate Tax Compliance

AED 375,000 means two different things, and that is the whole problem

The UAE runs two federal business taxes. They were introduced six years apart, they measure different things, they are enrolled for separately, and they are filed on different calendars. They also share a number.

AED 375,000 of taxable supplies obliges you to hold a VAT enrolment with the Federal Tax Authority. AED 375,000 of taxable income is the point at which corporate tax stops being charged at 0% and starts being charged at 9%. The first is revenue. The second is profit. A company invoicing AED 900,000 a year and clearing AED 200,000 of profit is inside the first and outside the second, and a company invoicing AED 300,000 of exempt supplies is outside the first regardless of what it earns.

Compliance failures here are rarely exotic. They come from treating the two regimes as one obligation, or from assuming a free zone licence answers both. This page sets out what each system requires of a company that already exists and is trading. If you have not incorporated yet, the decisions that are still cheap are on the UAE corporate tax for new companies page instead.

The 5% VAT regime

VAT was introduced by Federal Decree-Law No. 8 of 2017 with effect from 1 January 2018, and is administered by the FTA through EmaraTax. The standard rate is 5%.

When enrolment becomes compulsory, and when it is worth choosing

The voluntary limb is measured on expenses as well as supplies. A pre-revenue company spending on UAE fit-out, equipment or services can enrol before it has invoiced anybody and recover input tax already paid — a real cash argument for an early-stage business with heavy local costs, and, as set out below, a bad one for most others.

Below AED 375,000 nothing is compulsory on this test and AED 187,500 of taxable supplies or taxable expenses only opens the door to applying if you want to; at AED 375,000 of taxable supplies and imports, measured over the previous twelve months or expected in the next thirty days, the application becomes compulsory within 30 days of becoming liable.

Your tax period is assigned, not chosen

The FTA allocates the period. The default is quarterly; businesses with annual turnover of AED 150 million or more are placed on monthly periods, and the FTA may assign a different period to particular categories of business.

The return and the payment are both due by the 28th day of the month following the end of the tax period. A quarter ending 31 March is due 28 April. There is no separate payment date — money late is late even if the return was on time, and the two carry different penalties.

Zero-rated is not exempt, and the difference is cash

This is the single most expensive misunderstanding in UAE VAT, because both look like "no VAT charged" on an invoice.

Zero-rating at 0% covers exports of goods and services outside the GCC implementing states, international transport, the first supply of new residential property within three years of completion, qualifying education and healthcare, and investment-grade precious metals; exemption covers margin-based financial services, residential property after the first supply and residential leases, bare land and local passenger transport — and only the zero-rated half of that list counts toward the AED 375,000 threshold or lets you recover input tax.

A zero-rated business is a fully taxable business that happens to charge nothing. It reclaims VAT on rent, software, professional fees and stock, and is usually in a repayment position with the FTA. An exempt business absorbs that VAT permanently — it becomes cost, and reappears as a corporate tax deduction rather than a refund. Make both kinds of supply and you are partially exempt: input tax must be apportioned, and the method is something to agree before you file, not after.

Recovering input tax, and the windows that shut

Three rules cause more voluntary disclosures than everything else combined.

• The recovery window. Input tax must be claimed in the first or second tax period in which you both hold a valid tax invoice and intend to pay within six months. Miss both periods and the claim is not simply carried forward — correcting it means a disclosure.
• The six-month rule. If you have not paid a supplier within six months of the agreed payment date, input tax already recovered must be reversed, and claimed again once you pay. Ageing creditors quietly create VAT liabilities.
• Blocked input tax. VAT on entertainment provided to anyone other than staff, and on motor vehicles available for private use, is not recoverable at all, however good the invoice.

Reverse charge is the other reliable source of error. Services bought from outside the UAE are self-accounted — output tax and input tax in the same return, usually netting to nothing in cash but wrong if omitted. A return with an empty reverse charge box and a ledger full of overseas software subscriptions is a finding waiting to happen.

Free zone does not mean no VAT

Free zone status is a corporate tax and licensing concept. For VAT it is almost irrelevant. Only the fenced zones listed in Cabinet Decision No. 59 of 2017 are Designated Zones, that treatment applies to goods in defined circumstances, and services supplied in a Designated Zone are treated as supplied inside the UAE and taxed normally. A consultancy in a Designated Zone charges 5% on its UAE work exactly as a mainland firm does.

The penalty schedule changed on 14 April 2026

Cabinet Decision No. 129 of 2025 replaced the previous framework with effect from 14 April 2026, covering the Tax Procedures, VAT and Excise laws. It is materially more forgiving than what it replaced, and a great deal of guidance still in circulation quotes the old numbers.

The 14% rate is the same across VAT, excise tax and corporate tax — one of the reform's stated aims was to stop the three regimes charging differently for the same failure.

Two changes matter more than the rest. The 300% cap is gone, because the compounding structure that produced it is gone: an old liability left running for years could reach three times the tax, and cannot now.

And the voluntary disclosure rate is not one number, it is two, separated by a letter from the FTA. Disclose before the Authority notifies you of an audit and the charge is 1% per month. Disclose after that notice — or let the audit find it — and a fixed 15% lands on top. On an AED 200,000 understatement discovered eighteen months late, that is roughly AED 36,000 disclosed voluntarily against AED 66,000 once the letter has arrived. The gap is the entire argument for dealing with a known error now rather than hoping it is not selected.

The same error therefore has three prices, and which one you pay is decided by nothing except how early you deal with it.

Not every error needs a disclosure

A voluntary disclosure is a formal filing, not a synonym for fixing a mistake. For VAT, the dividing line is AED 10,000 of tax difference. Where the error in output tax, input tax or net tax payable is AED 10,000 or less, it can be corrected in the return for the period in which you discovered it. Above AED 10,000, a voluntary disclosure is required, and it must be submitted within 20 business days of discovering the error.

Both halves of that rule get broken. Small errors get escalated into disclosures that were never needed, which invites attention and costs fees. Large ones get quietly netted off in the next return, which is a separate violation on top of the original one — and it forfeits the 1% rate, because the moment an auditor finds it, the 15% applies.

Which ones actually get charged

Not the evasion provisions. The penalties ordinary trading companies pay are the AED 1,000 late filing charge, the monthly late payment interest on a return filed on time but funded a week later, the records penalty after an audit finds no tax invoices for a year of expenses, and the cancellation penalty on a company that stopped trading and never told the FTA. Every one of them is administrative. None requires bad faith.

The word "audit" carries two unrelated meanings in this regime, and confusing them is expensive in both directions — what a tax audit is, and what you can actually commission separates an FTA examination of your file from the audited financial statements a QFZP has to hold.

The 9% corporate tax regime, as a filing obligation

Corporate tax arrives under Federal Decree-Law No. 47 of 2022 for financial years beginning on or after 1 June 2023. Taxable income up to AED 375,000 is charged at 0% and the excess at 9%, per Cabinet Decision No. 116 of 2022. A natural person only enters the regime where business turnover exceeds AED 1,000,000 in a calendar year, under Cabinet Decision No. 49 of 2023.

Taxable income up to AED 375,000 is charged at 0% and only the excess at 9%, so crossing the line changes what the 9% applies to rather than switching the whole figure onto it.

Enrolment is separate and unconditional. A corporate tax enrolment with the FTA is required whether or not tax will ever be payable — including by companies claiming relief and by free zone companies expecting 0%. Under FTA Decision No. 3 of 2024, companies incorporated on or after 1 March 2024 must apply within three months of incorporation. Late application costs AED 10,000. Holding a VAT enrolment does not enrol you, and vice versa: two applications, two enrolment numbers, one portal. Working out which date applies to an older company is set out in how the corporate tax enrolment deadline is calculated.

The return and the payment are due nine months after the tax period ends. A 31 December 2025 year end is due 30 September 2026. Late filing runs at AED 500 per month for the first twelve months and AED 1,000 per month thereafter; late payment attracts 14% per annum, calculated monthly — the same rate the April 2026 reform applied to VAT.

Small Business Relief is an election made inside the return

A resident company with revenue at or below AED 3,000,000 in the current and every previous tax period may elect to be treated as having no taxable income, under Ministerial Decision No. 73 of 2023. The Ministry of Finance extended it to tax periods ending on or before 31 December 2029.

For compliance purposes the three things to hold on to are these. It is tested on revenue, not profit. It is claimed in the return, so you still enrol and still file. And it is lost permanently the first time revenue exceeds AED 3 million — there is no return to it after a strong year.

Revenue at or below AED 3,000,000 in the current tax period and in every previous one can be elected into the relief inside the return, for tax periods ending on or before 31 December 2029; the first time revenue exceeds AED 3 million the relief is lost permanently, and the enrolment and the annual filing continue either way.

The Qualifying Free Zone Person test, and what breaks it

Article 18 creates a status, not an exemption: 0% on qualifying income, 9% on everything else, with no AED 375,000 nil band on the non-qualifying part. All five conditions must hold — adequate substance in the zone, qualifying income as defined by Cabinet Decision No. 100 of 2023 and Ministerial Decision No. 229 of 2025, no election into the standard regime, arm's length pricing with transfer pricing documentation, and audited financial statements regardless of revenue under Ministerial Decision No. 84 of 2025.

What breaks it, in practice, is the de minimis. Non-qualifying revenue is tolerated only up to the lower of 5% of total revenue or AED 5 million. Cross that and status is lost for five tax periods. On AED 4 million of revenue the allowance is AED 200,000 — one unbudgeted mainland contract. Because the position is self-assessed and reviewable years later, the de minimis is something to monitor quarterly, alongside the VAT return, rather than discover at year end.

Which number puts you in scope of what

The two regimes measure your size five different ways. Grouped by the obligation each number actually starts, this is the set worth keeping.

VAT is measured at AED 187,500 of taxable supplies or taxable expenses for optional enrolment, AED 375,000 of taxable supplies and imports for compulsory enrolment, AED 10,000 of error in a return above which a voluntary disclosure is required, and AED 150,000,000 of turnover for monthly rather than quarterly periods; corporate tax is measured at AED 375,000 of taxable income ending the 0% band, AED 1,000,000 of turnover for a natural person, AED 3,000,000 of revenue as the ceiling for Small Business Relief, 5% of total revenue or AED 5,000,000 whichever is lower as the non-qualifying allowance that costs QFZP status for five periods, AED 50,000,000 of revenue for audited financial statements — though any QFZP needs them at any size — and AED 200,000,000 of revenue for the transfer pricing master file and local file; and AED 50,000,000 of revenue is also the first mandatory eInvoicing wave.

Three consequences follow. Your VAT returns and your corporate tax return declare overlapping revenue to the same authority through the same portal, so they must reconcile — an unexplained gap between four quarters of declared supplies and one annual revenue figure is the cheapest audit trigger available. Entertainment is treated differently by each regime on the same invoice: input VAT is blocked entirely, corporate tax allows half. And VAT you could not recover is not lost twice — it forms part of the cost and is deductible for corporate tax like any other expense.

What lands next: eInvoicing

The UAE is moving to a Peppol-based eInvoicing model, run by the Ministry of Finance and the FTA on a decentralised exchange architecture. The pilot and voluntary phase opened on 1 July 2026. Invoices will be transmitted through an Accredited Service Provider rather than emailed as PDFs, and appointing one is a dated obligation in its own right — earlier than the date you go live.

Revenue of AED 50 million or more means appointing a provider by 30 October 2026 and exchanging invoices from 1 January 2027; revenue below AED 50 million and government entities both appoint by 31 March 2027, exchanging from 1 July 2027 and 1 October 2027 respectively, with the voluntary phase open since 1 July 2026.

Missing the appointment or implementation deadline carries a penalty reported at AED 5,000 for each month of failure. For a company in the first wave, the ASP deadline is roughly ten weeks from the date on this page, and the work of mapping your invoice data to the mandatory field set is not a weekend job. These dates have already moved once, so confirm them against the Ministry of Finance programme before you commit to a vendor.

Where this is the wrong purchase

We would rather lose the engagement than sell you the wrong one.

Voluntary VAT enrolment is usually a mistake if you sell to consumers. The pitch is input tax recovery. The reality, if your customers are UAE individuals or businesses that are not VAT-enrolled, is that you become 5% more expensive overnight, acquire a quarterly filing obligation and a records burden, and take on penalty exposure you did not previously have. It pays when your customers are VAT-enrolled businesses or your supplies are zero-rated. It rarely pays otherwise.

Do not buy corporate tax planning under Small Business Relief. If your revenue is under AED 3 million and you elect the relief, there is no taxable income to structure around. What you need is a bookkeeper and a return filed on time. Anything sold as planning at that scale is a solution to a problem you do not have.

Outsourced filing cannot outrun bad bookkeeping. A filing agent working from a folder of bank statements produces a return that is punctual and wrong. Source records determine the return; nobody can reconstruct a valid input tax claim from documents that were never obtained. If your ledger is not current, buy the audit and accounting work first and the filing second.

QFZP status can cost more than it saves. Audited financials at any size, transfer pricing documentation and genuine substance are annual costs. On a company with AED 800,000 of turnover they can exceed the tax the status was meant to remove, and Small Business Relief — unavailable to a QFZP — may leave you better off.

Voluntary enrolment at AED 187,500 buys back input tax at the price of 5% on everything you sell to a customer who cannot reclaim it; Small Business Relief up to AED 3,000,000 of revenue removes the taxable income and is gone for good the first year revenue passes AED 3 million; and Qualifying Free Zone Person status buys 0% on qualifying income at the price of audited financial statements at any size, transfer pricing documentation, and the loss of the AED 375,000 nil band on everything that does not qualify.

A monthly retainer is the wrong shape for an annual obligation. If you file one corporate tax return a year, hold no VAT enrolment and run low transaction volume, buy the work as a job rather than a subscription.

Check the tax agent number of whoever you appoint, including us. Only an agent enrolled with the FTA can act for you before the Authority in the matters reserved to agents. Ask for the number, and verify it on the FTA record rather than taking it from a brochure.

If an assessment or penalty is wrong

There is a route, and it has deadlines. A reconsideration request goes to the FTA within 40 business days of the decision; the Authority reviews it and notifies its decision within a defined window. If that fails, an objection goes to the Tax Disputes Resolution Committee at the Ministry of Justice, and disputed amounts generally have to be settled before an objection is admissible. Missing the first window usually forecloses the rest, which is why a penalty notice is not something to leave in an inbox for a month.

The reconsideration request is the one hard window — 40 business days from the decision, to the FTA, which then notifies its own decision within a defined window; after that the file changes hands to the Tax Disputes Resolution Committee at the Ministry of Justice, with the disputed amounts generally settled before the objection is admissible, and missing that first window usually forecloses the rest.

Records supporting all of this must be kept for five years from the end of the relevant tax period, with a longer retention applying to real estate. The FTA's audit reach is keyed to the same period, and extends considerably where a person should have been enrolled and was not.

What we need in order to quote

Send us your trade licence, your existing FTA enrolments if any, your financial year end, your last four VAT returns, and an honest description of your customer mix — free zone, mainland, or overseas. That is enough to tell you which regimes you are actually in, whether your current filings reconcile, and whether anything historic needs a voluntary disclosure while it is still charged at 1% a month rather than 15% plus 1%.

Where the question is not a filing at all but a position — how the year end should fall, which elections to make before it, what CFO-level support a growing company needs — the wider tax and financial advisory section covers that work rather than this page.

Nothing here is advice on your own facts, and no figure should be relied on without checking the source cited. This regime has been amended repeatedly, once retroactively, and the penalty schedule above is four months old.

Frequently asked questions