How to Calculate VAT in the UAE: Formulas and B2B Examples (2026)

The UAE has charged VAT at a standard rate of 5% since 1 January 2018, according to the Ministry of Finance, with the rate set by Article 3 of Federal Decree-Law No. 8 of 2017. The arithmetic takes seconds. The mistakes happen in the B2B details: quotes that are unclear about whether VAT is included, discounts applied in the wrong order, invoices in US dollars, and fils that do not round.

For a quick number, use the free UAE VAT Calculator.

The three formulas you need

Everything starts from the net price, which is the amount before VAT.

• VAT on a net price: net price × 0.05
• Total including VAT: net price × 1.05
• Net price from a VAT-inclusive total: total ÷ 1.05

The VAT inside an inclusive total is the total ÷ 21 (the same as total × 5/105). That shortcut is handy when you only need the tax figure.

Example: adding VAT. You sell consulting services for AED 12,000. VAT is 12,000 × 0.05 = AED 600, so the invoice total is AED 12,600.

Example: removing VAT. A supplier quotes AED 8,400 including VAT. The net price is 8,400 ÷ 1.05 = AED 8,000, and the VAT is AED 400 (also 8,400 ÷ 21).

The most common error is taking 5% off the inclusive total. 8,400 × 0.95 gives AED 7,980, which understates the net price by AED 20.

Inclusive or exclusive: which price are you quoting?

Article 38 of the VAT law says the advertised price of a taxable supply must include VAT. The Executive Regulation then carves out two exceptions: you may quote prices exclusive of VAT when the customer is a VAT registrant, or when the goods or services are for export. If you use the exception, the price must be clearly identified as exclusive of tax.

In practice, this means:

• Prices shown to consumers, on a public price list or a shop shelf, should be VAT-inclusive.
• A quote to a registered business can read "AED 10,000 + VAT", as long as it says so plainly.
• A bare "AED 10,000" invites a dispute over whether the buyer owes AED 10,000 or AED 10,500.

Discounts: apply them before VAT

Under Article 39, a discount reduces the value of the supply, and VAT is charged on the reduced value. The FTA also lists "the amount of any discount offered" among the details a valid tax invoice must show.

Example. List price AED 10,000, trade discount 5%. The taxable value is AED 9,500, VAT is AED 475, and the total is AED 9,975. Charging VAT on the full AED 10,000 and then discounting the total would overstate the tax by AED 25.

Article 39 also covers discounts granted after the date of supply, such as a settlement discount for early payment. The value of the supply drops in proportion, and the FTA says corrections to issued tax invoices are made through tax credit notes. If you offer early-payment terms, the Early Payment Discount Calculator shows what the discount actually costs you.

Rounding to the fils

The FTA's tax invoice guidance is specific: if the VAT amount is a fraction of a fils, round it to the nearest fils on the tax invoice. A line priced at AED 37.35 carries VAT of 1.8675, which rounds to AED 1.87. Pick one approach (per line or per invoice) and apply it consistently.

Invoices in foreign currency

Many UAE traders invoice in US dollars or euros. That is allowed, but the FTA requires the amounts to be converted into dirhams at an exchange rate approved by the Central Bank. A valid tax invoice must show the total VAT in AED, together with the exchange rate applied and its source.

Example. You invoice USD 5,000 net. At an illustrative rate of 3.6725, the net value is AED 18,362.50 and the VAT is AED 918.125, which rounds to AED 918.13.

Full or simplified tax invoice

The VAT calculation is the same, but the paperwork differs. The FTA allows a simplified tax invoice when the buyer is not VAT registered, or when the buyer is registered and the VAT-inclusive price is AED 10,000 or less. Above that, a registered buyer needs a full tax invoice to recover the input tax. If your invoicing is moving to the national e-invoicing system, the math does not change; our guide on whether a PDF still counts as an e-invoice explains what does.

From invoices to your VAT return

The Executive Regulation defines payable tax as the tax due on your sales (output tax) less the recoverable tax on your business purchases (input tax).

Example quarter. You issued invoices carrying AED 45,000 of output tax and received supplier invoices carrying AED 18,000 of recoverable input tax. Payable tax is AED 27,000. The return and the payment must reach the FTA no later than the 28th day after the end of the tax period.

Two rules affect the input side:

• You need the paperwork. Article 55 lets you recover input tax once you hold a valid tax invoice and have paid, or intend to pay, the supplier.
• You need to pay on time. The Executive Regulation treats you as having paid only to the extent you intend to settle within six months after the agreed payment date. Stretching suppliers well past terms can put your input tax recovery at risk.

The penalty for paying late also changed this year. Since 14 April 2026, Cabinet Decision No. 129 of 2025 has replaced the old flat percentage penalties with a monthly penalty at 14% per year on unsettled payable tax. On the AED 27,000 above, one month late costs roughly AED 315.

The catch: VAT is due before your customer pays

Article 25 sets the date of supply, and therefore when VAT is calculated, as the earliest of several events, including delivery, completion of a service, receipt of payment or the issue of the tax invoice. Your customer's payment is only one of those triggers. If you invoice on 60 or 90 day terms, you usually owe the VAT on the return before the cash arrives.

The law offers relief only at the far end. Under Article 64, you can reduce output tax for a bad debt once more than six months have passed since the supply, the amount is written off in your accounts, and the customer has been notified. It does nothing for the months in between. We cover that gap in detail in why VAT squeezes cash flow for UAE businesses.

This is where Comfi fits. Across Comfi's customers, average buyer payment terms are 90 days, which is longer than a quarterly VAT cycle. With Invoice Discounting, you unlock the cash stuck in approved receivable invoices within hours (Comfi's median is about 20 hours from approved invoice to funds in the bank), so the VAT on a sale can be paid from that sale. Comfi is not a lender and does not provide loans; nothing is borrowed.

A quick VAT calculation checklist

• Confirm whether the price is inclusive or exclusive, and label B2B quotes clearly.
• Apply discounts first, then calculate 5% on the reduced value.
• Round the VAT to the nearest fils.
• Convert foreign-currency invoices to AED at a Central Bank approved rate and show the rate and source.
• Keep valid tax invoices for every purchase you claim, and pay suppliers within six months of the agreed date.
• Match output tax to your sales ledger before you file by the 28th.

If unpaid invoices are what make VAT day painful, see if your business qualifies to unlock working capital from them.

Sources

1. Federal Tax Authority, Federal Decree-Law No. 8 of 2017 on Value Added Tax and its amendments (accessed October 2026). Supports the 5% rate (Art. 3), date of supply (Art. 25), tax-inclusive prices (Art. 38), discounts (Art. 39), input tax recovery (Art. 55) and bad debt relief (Art. 64).
2. Federal Tax Authority, Executive Regulation of the VAT Decree-Law (Cabinet Decision No. 52 of 2017, as amended to September 2026) (accessed October 2026). Supports exclusive pricing for registrants and exports, the payable tax definition, the six-month payment rule and the 28-day return deadline.
3. Federal Tax Authority, VAT11: Tax Invoices (accessed October 2026). Supports invoice content, discounts on invoices, simplified invoices, rounding to the nearest fils, foreign currency conversion and credit notes.
4. Federal Tax Authority, Cabinet Decision No. 40 of 2017 on Administrative Penalties, as amended by Cabinet Decision No. 129 of 2025 (accessed October 2026). Supports the 14% per year late payment penalty effective 14 April 2026.
5. Ministry of Finance, Value Added Tax (VAT) (accessed October 2026). Supports the 5% standard rate and the 1 January 2018 start date.