<div class="disclaimer">Note: Dubai the city is the capital of Dubai, the Emirate. For the purposes of this article, we’re referring to the Emirate of Dubai as a whole. In fact, the UAE government has implemented a 5% VAT so these rules apply across the UAE. </div>

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As the most populous city in the United Arab Emirates (UAE), Dubai is renowned for its luxury, featuring a 7-star hotel and Lamborghini police cars. It's likely not surprising that the city has a reputation for friendly tax laws.

It also stands to reason that this pinnacle of opulence is also well-known for its shopping scene. But shopping in Dubai is no longer tax-free.

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Is There Sales Tax in Dubai?

Dubai doesn’t have a sales tax system as we think of it in the US. Instead, they have a VAT system, similar to the United Kingdom (UK) and European Union (EU).

On January 1, 2018, the emirate implemented a 5% value added tax (VAT) on most goods and services. As with other indirect taxes around the world, this allows Dubai, as well as capital city Abu Dhabi and the rest of the UAE, to supplement their coffers based on business and consumer activity in this bustling international city.

Learn what this means for businesses who sell into Dubai and the entire UAE.

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Understanding UAE's Tax System

The UAE’s “tax haven” status took a bit of flak when they announced they would begin requiring VAT in 2018. Before that, residents and visitors enjoyed no consumption taxes. Effective in 2023, the UAE also implemented a 9% corporate tax rate (CT).

These tax regulations were introduced as a way to diversify the country’s revenue and somewhat decrease dependency on oil profits.

The good news for UAE residents (and tax residents) is that there’s still effectively no personal income tax, and the country remains comparatively tax-friendly despite the developments of the past few years.

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UAE Value Added Tax (VAT)

The UAE implemented a 5% VAT on January 1, 2018.

VAT applies to the sale of most goods and services at all levels of the supply chain. Though there are some exceptions that are not taxed, including:

• Exported goods
• International transportation
• Crude oil/natural gas
• Residential real estate
• Public services like healthcare & education

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UAE Corporate Tax (CT)

The UAE's 9% corporate tax, implemented June 1, 2023, applies to businesses earning over AED 375,000 annually. However, many B2B companies can receive a full exemption by operating through the UAE's 50+ Free Zones as "Qualifying Free Zone Persons" (QFZPs). 

To qualify, businesses must: maintain “adequate substance” in a Free Zone, generate at least 95% of revenue from qualifying activities (like manufacturing, logistics, or headquarter services), meet transfer pricing rules, and prepare audited financial statements. Excluded activities include most consumer sales, banking, insurance, and real estate dealings. While Free Zone income is tax-exempt, non-Free Zone activities remain taxable at 9%. Learn more about the UAE’s Free Zones here.

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VAT Applicability for Digital Products

The UAE requires any non-resident digital goods seller who sells SaaS subscriptions, digital products, apps, online games, advertising and/or cloud and software storage, to immediately register with the Federal Tax Authority and start collecting VAT as soon as they begin selling into the country.

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Monitoring VAT & Corporate Tax Liability

VAT Liability

VAT in Dubai and the rest of the UAE, with some exceptions, is typically 5%. Registration is mandatory after a company makes 375,000 UAE dirham (AED) per year in revenue in the country.  Non-resident digital services providers, such as SaaS providers, are required to register and begin collecting VAT immediately. There is no revenue threshold. 

The country also allows for voluntary registration for VAT after your revenue reaches AED 187,500. 

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Corporate Tax Liability

Corporate tax, for the most part, is 9% unless you sell B2B and can follow guidelines such as confining 95% or under AED $5 million of your business to Free Zones. Businesses whose revenue in the UAE exceeds 375,000 UAE dirham (AED) per year are liable for this tax. 

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Registration Requirements

Businesses required to register for VAT or Corporate Tax must register with the UAE’s Federal Tax Authority (FTA).

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VAT registration requires:

• Valid trade license(s)
• Business identifying information 
  
  • Contact information
  • Articles of incorporation
  • EIN confirmation letter
  • Turnover declaration form (i.e. a form outlining historical financials)
• Passport/Emirates ID of authorized signatory(s)
• Proof of authorization for the authorized signatory(s)
• Bank letter validating your company's account details
• Proof of purchase orders/contracts
• Proof of customer invoices
• Wait 1-2 months for completed registration

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Businesses that are registering for VAT due to selling taxable supplies will also be requested to provide certain financial statements.

Sphere takes care of all the administration associated with registering for VAT in the UAE. With Arabic-speaking experts, we can also help you navigate the complex rules in the region and how they related to your business.

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VAT Calculation in the UAE

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Standard Vat Rate

In the UAE, the standard Value Added Tax (VAT) rate is 5%, which applies to most goods and services sold within the mainland UAE. In simple terms, when purchasing something for 100 AED, an additional 5 AED is charged as VAT, bringing the total payment to 105 AED.

Businesses who are selling to other businesses can apply the reverse charge mechanism to avoid paying VAT.

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Reverse Charge Mechanism

The reverse charge mechanism facilitates cross-border transactions between UAE companies and foreign suppliers. If the foreign supplier isn’t required to register for VAT, the UAE-based company can account for the VAT itself. Under this system, the UAE recipient of goods or services becomes responsible for calculating, reporting, and paying the VAT that would normally be charged by the supplier. This shifts the VAT obligation from the supplier to the recipient.

For SaaS companies who do not operate in the UAE but sell to UAE customers, the reverse charge mechanism offers a significant advantage: you don't need to register for VAT in the UAE. 

Your UAE business customers will handle the VAT obligations themselves by self-assessing the 5% VAT on your services. This means you can sell your software solutions to UAE businesses without establishing a local tax presence or filing UAE VAT returns. Your invoices to UAE business customers should clearly indicate that the transaction is subject to reverse charge, allowing them to properly account for it on their end. 

This simplifies your compliance requirements while still ensuring that the appropriate taxes are collected by UAE authorities. However, note that sales to non-VAT-registered UAE customers (such as individuals) may have different requirements, as the reverse charge mechanism only applies to B2B sales to registered businesses. 

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How to Apply the Reverse Charge Mechanism

To comply with the reverse charge mechanism, be sure to:

1. Collect VAT ID (or the Tax Registration Number (TRN) in the case of UAE) from the end customer
2. Validate the TRN in the EmaraTax portal to ensure that the it is legitimate
3. On the invoice, clearly  indicate that the transaction is subject to the reverse charge

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Zero-Rated Supplies

Some items in the UAE are taxed, but at a 0% rate. This simply means that while no tax is due on these items, businesses can still claim credits for any VAT paid during the production of the items. Zero-rated items include exports of goods and services outside the UAE, certain educational and healthcare services, newly constructed residential properties (first supply within 3 years), investment-grade precious metals, and international transportation. 

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Exempt Supplies

These are similar to zero-rated supplies except that businesses cannot claim tax credits based on any VAT paid when producing them. Common exempt supplies include financial services, residential property rentals, local passenger transport services, and undeveloped land.

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Input Tax Recovery Process

With VAT, businesses can generally recover any VAT they paid on any purchase they then used to make taxable supplies. 

To do this, a business typically:

1. Calculates all VAT paid (output tax) on business expenses and purchases
2. Determines if those expenses were standard rated (5%) or zero-rated (0%)
3. Records the taxes you paid (input tax) on your VAT tax return
4. Offsets all output tax against input tax
5. Either pays additional tax due or request a refund if you paid more than you received

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B2B SaaS VAT Example

Your Melbourne-based B2B SaaS company, Widigtz, sells to a business customer in Dubai. They pay a monthly subscription of 1,000/month AED. Because you have no obligation to register for VAT in the UAE, you simply collect and validate the customer’s VAT (or, in the case of the UAE, TRN) then include on the customer’s invoice “reverse charge mechanism applies.” Your Dubai customer self-asseses the 5% VAT they would have paid and then claims a credit for that same 5%.

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Filing VAT Returns

VAT returns are due quarterly for most businesses, though businesses that gross more than 150 million AED will generally be required to file and pay monthly.

Taxpayers file via the Federal Tax Authority’s website, EmaraTax, or using the paper form VAT201.

It’s important to note that filing requires that you calculate and file your tax collected within each Emirate, not just in the UAE as a whole. This means you must determine in which Emirate each customer was located or billed. 

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Unsure how to do this? Too time-consuming?

Sphere's AI-powered tax compliance solution takes care of it.

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VAT is due on the 28th day of the month after the taxable period ends. Tax payments must be remitted via international wire, details of which can be found on the EmaraTax website.

To remain compliant, be sure to keep your VAT records, including invoices, for credit notes, and other relevant documents for the 5-year lookback period. 

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VAT Remittance & Penalties

The UAE tax authority will levy penalties for late or incorrect VAT filing and remittance:

• Late VAT registration or deregistration - 10,000 AED
• Late VAT filing - Up to AED 1,000 (2,000 for repeat offenses)
• Late VAT payment - 2% of unpaid tax and a 4% monthly penalty for each month paid late
• Incorrect VAT return - Up to AED 1,000  (2,000 for repeat offenses)
• Improper record keeping - Up to AED 10,000 (20,000 for repeat offenses)

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How Sphere Simplifies UAE Tax Compliance

Factors like immediate VAT liability make selling your SaaS products into Dubai (and the rest of the UAE) complicated. Here’s how Sphere’s AI-enabled compliance tool can help:

• AI-Powered Monitoring – track VAT liability registration thresholds and get alerted before registration is required.
• Automated VAT Filing & Payment – streamline your VAT filings and payments to the UAE’s Federal Tax Agency (FTA).
• Local Experts – Sphere provides local expertise to handle communications between foreign businesses and the FTA.
• Multi-country compliance – manage JCT alongside EU VAT, US sales tax, Canadian GST, and more.

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Expand to Dubai (and UAE) with Confidence

Dubai and the entire UAE is a compelling market for international businesses, but navigating the country’s relatively new VAT and Corporate Tax (CT) systems can be challenging. A misstep could not only result in substantial fines and penalties, but damage relationships with both the Federal Taxing Authority (FTA) and business partners. With immediate VAT liability for non-resident digital service providers and complex Free Zone qualification requirements, navigating Dubai's tax landscape requires careful attention to detail.

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While selling into the UAE may at first seem daunting, Sphere’s AI-powered platform simplifies this complex process, so you can focus on growing your business in a new market rather than losing sleep over whether you’ve hit a tax compliance threshold. And with features like local representatives and automated filing and payment, you can expand to Dubai and the broader UAE with confidence. 

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👉 Schedule a demo with Sphere today to streamline your tax compliance.