Value Added Tax (VAT) in the UAE is a consumption tax introduced on January 1, 2018, under Federal Decree-Law No. 8 of 2017. VAT is levied on most goods and services at a standard rate of 5%, with the aim of diversifying the country’s revenue sources and aligning with international tax practices. It applies at each stage of the supply chain, from production to final sale, ensuring that value is taxed as it is added at each step.

What is Input tax and Output tax ?

In the UAE VAT system, input tax and output tax are key concepts that help businesses manage their VAT obligations effectively:

• Input Tax:This refers to the VAT that a business pays on purchases of goods and services used to produce its own taxable supplies. Input tax can be reclaimed or deducted from the VAT a business owes, provided the purchases are related to taxable business activities. For example, if a company buys raw materials or services that are used to manufacture products for sale, the VAT paid on these inputs can be recovered, reducing the overall tax burden.
• Output Tax:This is the VAT that a business collects from its customers when selling goods or services. The output tax is added to the sale price of taxable supplies and must be reported to the Federal Tax Authority (FTA). Businesses are required to charge VAT on their sales and remit this collected tax to the FTA, less any input tax they have reclaimed.