From the Inside Out.
"VAT, Excise Tax, and Customs Duty apply to every invoice, every import, every transaction. The businesses that manage them correctly from the start spend a fraction of what those who don't spend on remediation."
— Finerio Indirect Tax Practice
Taxes Collected at Every Transaction. Managed by Every Business.
Indirect taxes are taxes collected by businesses on behalf of the government — charged at the point of sale, import, or transaction and remitted to the relevant authority. Unlike Corporate Tax, which is calculated once a year on your profits, indirect taxes apply to every transaction your business conducts: every invoice you issue, every purchase you make, and every import or export you process.
In the UAE, there are three main indirect taxes: Value Added Tax (VAT) — introduced on 1 January 2018 at a standard rate of 5%; Excise Tax, which applies at higher rates on specific goods considered harmful to health (tobacco, sugary drinks, energy drinks); and Customs Duty, levied on goods imported into the UAE and the broader GCC through a common external tariff regime. All three carry significant compliance obligations and penalties administered by the Federal Tax Authority (FTA) and UAE Customs authorities.
Getting indirect tax wrong is costly — not just in penalties, but in the cost of correcting historical returns, managing audit exposure, and the reputational impact of a compliance failure. Finerio provides practical, commercially grounded indirect tax advisory that keeps your VAT, Excise Tax, and Customs Duty positions clean, defensible, and optimised.
Indirect tax — the many names for transaction-level and border taxation
Depending on context, indirect tax services are described using a wide range of terms — all relating to VAT, Excise Tax, Customs Duty, and consumption-based taxes on business transactions and imports.
What We Do For You
Comprehensive VAT, Excise Tax, and Customs Duty advisory, compliance, and dispute services — covering every indirect tax obligation your UAE business faces.
The Key Facts Every VAT-Registered Business Must Know
A plain-language summary of the UAE VAT regime — what applies to whom, how it works, and what can go wrong.
1. Standard Rate — Most Goods & Services
VAT applies at 5% on the supply of most goods and services in the UAE. The business charges VAT on sales (output tax), recovers VAT paid on purchases (input tax), and remits the difference to the FTA.
2. Zero-Rated Supplies
Some supplies are zero-rated — taxable at 0%, which means VAT is charged at 0% but the business can still recover input tax. Key zero-rated categories include: exports of goods, international services, certain healthcare and education services, and residential buildings (first supply).
3. Exempt Supplies
Exempt supplies are outside the VAT system — no VAT is charged, but input tax on related costs cannot be recovered. Key exempt categories include: financial services, residential property (subsequent sales), and bare land. Misclassifying exempt vs zero-rated is a common and costly error.
4. Registration Thresholds
Mandatory VAT registration applies when taxable supplies exceed AED 375,000 per year. Voluntary registration is available from AED 187,500. Registration is mandatory before supplies are made in many cases — late registration attracts FTA penalties.
5. Filing Frequency
Most businesses file VAT returns quarterly. Businesses with annual taxable supplies above AED 150 million file monthly. Returns must be filed and payment made within 28 days of the end of the tax period.
6. FTA Penalties
Penalties apply for late registration, late filing, late payment, errors in returns, failure to issue tax invoices, and failure to maintain records. A voluntary disclosure filed before an FTA audit attracts lower penalties than one filed after audit commencement.
The Indirect Tax Questions UAE Businesses Face
The most frequent VAT, Excise Tax, and Customs Duty issues our clients bring to us — and how we resolve them.
My customer is overseas. Do I still charge VAT?
It depends on the nature of the service. Many international services are zero-rated — but only if the customer is outside the UAE AND the benefit of the service is consumed outside the UAE. Getting this wrong — either way — creates either FTA exposure or unnecessary VAT cost for your customers. We determine the correct treatment for each service type.
We received a service from overseas. Do we owe VAT?
Yes — in most cases. Services imported from overseas suppliers who are not UAE-registered are subject to the reverse charge mechanism: you, the UAE customer, account for the VAT as if you had charged it to yourself. This is one of the most commonly missed VAT obligations in UAE businesses.
Can I recover VAT on entertainment expenses?
No. Input VAT on entertainment expenses — restaurant meals, hospitality events, gifts — is specifically blocked and cannot be recovered, even if the expense is wholly for business purposes. We identify blocked input tax in your cost base to prevent incorrect recovery claims that could trigger FTA scrutiny.
Our business makes both VAT-able and exempt supplies. How much VAT can we recover?
You must apportion your input tax using a partial exemption calculation — recovering only the proportion that relates to your taxable supplies. The standard method uses a turnover-based apportionment, but we can apply for a special method that better reflects your business's actual use of inputs if it produces a more accurate result.
We found errors in old VAT returns. What do we do?
You must file a voluntary disclosure with the FTA. The penalty for self-correcting before an audit is significantly lower than if the FTA finds the error. We manage the entire process — quantifying the error, preparing the disclosure, and seeking penalty waiver or reduction where grounds exist.
The FTA has issued us a penalty. Can it be challenged?
Yes. FTA penalties can be challenged through a reconsideration request, and further escalated to the Tax Disputes Resolution Committee (TDRC) if the reconsideration is unsuccessful. We assess whether grounds for challenge exist, prepare the formal response, and represent your business through the dispute process.
We are launching a new product. How do we determine the VAT treatment?
Before launching, obtain a formal VAT opinion from a tax advisor. The VAT treatment of a new product line or service depends on its nature, your customer base, and the place of supply rules — and getting it wrong from day one means every invoice for that product is potentially incorrect.
We export goods. How does VAT work on exports?
Exports of goods outside the UAE are zero-rated for VAT purposes — you charge 0% VAT and can recover input tax on related costs. But the zero-rating only applies if you can produce evidence of export: shipping documents, customs export declarations, and proof of delivery outside the UAE. We help you put in place the documentation controls to protect your zero-rating.
We import goods into the UAE. Are we paying the right customs duty?
The duty rate on your imported goods is determined by the HS code your freight forwarder or customs broker has declared to UAE Customs. Incorrect classification — which is extremely common — can mean you are overpaying duty on every shipment, or underpaying and creating an audit liability. We conduct HS code reviews across your product range and correct any misclassifications, securing both future savings and potential refunds on past imports.
We store goods in a free zone and sometimes sell to UAE mainland customers. What customs rules apply?
When goods move from a UAE Designated Free Zone to the mainland, they are treated as a customs import and duty becomes payable at that point — not when the goods first arrived in the free zone. VAT is also due on the "deemed import." We map your goods flows, determine the customs and VAT implications of each movement, and design a compliant process that ensures duty is paid only when and to the extent it is legally due.
Questions we hear from clients every week.
Plain-language answers to the most common questions about UAE VAT, Excise Tax, and Customs Duty.
This is one of the most important distinctions in UAE VAT — and one of the most commonly confused. Zero-rated supplies are taxable at 0% — you charge no VAT on sales, but you can still recover all the VAT you paid on related business costs. Exempt supplies are outside the VAT system — you charge no VAT on sales, but you cannot recover the VAT you paid on related costs. This difference makes exempt treatment significantly more expensive for the business. A business that incorrectly treats a supply as exempt (when it should be zero-rated) may be leaving significant input tax unrecovered.
A tax invoice is the document that entitles your customer to recover the VAT you have charged. Under UAE VAT law, a tax invoice must contain specific mandatory information — including your TRN (Tax Registration Number), the customer's name and address, a sequential invoice number, the date, a description of the goods or services, the taxable amount, the VAT rate, and the VAT amount. Issuing invoices that are missing any mandatory field means your customer cannot recover the VAT — which they will ask you to correct. We review tax invoice templates to ensure they are fully compliant before they go to customers.
A VAT Group allows two or more UAE companies under common ownership and control to be treated as a single VAT registrant — filing one VAT return for the entire group and ignoring VAT on supplies made between group members. This significantly simplifies compliance for groups that trade extensively with each other and eliminates the cash flow cost of charging VAT on intercompany transactions. To form a VAT Group, members must be UAE-established, under common control, and all engaged in business activities. We manage the VAT Group application and ongoing compliance.
The FTA can audit VAT returns going back 5 years from the date the return was due — or 15 years in cases of fraud. This means errors made in 2018 and 2019, when UAE VAT was first introduced and many businesses were still learning the rules, can still be the subject of an FTA audit today. A VAT health check covering historical returns is a sensible risk management step for any business that has been VAT-registered for several years, particularly if the VAT treatment of key transactions has never been formally reviewed by a tax professional.
File and pay as soon as possible. Late filing and late payment penalties are assessed automatically by the FTA — AED 1,000 for the first offence, AED 2,000 for repeat offences within 24 months, plus a monthly late payment surcharge of 1% per month on unpaid tax after one month. The penalty increases with time, so there is no benefit in waiting. We can help you file the outstanding return immediately, calculate any interest or surcharge due, and assess whether grounds exist for a penalty reconsideration request.
Salary payments to employees are not a supply for VAT purposes and do not attract VAT. However, intercompany recharges between related entities are generally subject to VAT — if one company charges another for services, rent, management fees, or shared costs, VAT applies in most cases (unless they are in the same VAT Group). Many businesses incorrectly treat intercompany transactions as outside the scope of VAT, creating both output tax underdeclaration and potential penalties. We review intercompany arrangements and confirm the correct VAT treatment for each type of charge.
An HS code (Harmonised System code) is an internationally standardised six- to eight-digit number that classifies every type of traded good — from raw materials to finished products. UAE Customs uses the HS code declared on your import entry to determine: which duty rate applies; whether any duty exemption, suspension, or preferential rate is available; whether the goods are subject to import restrictions or licensing requirements; and whether anti-dumping or safeguard duties apply. Incorrect HS classification — which is one of the most common customs compliance failures — can mean you are paying the wrong duty rate on every shipment. It can also expose you to customs penalties for under-declaration if the correct classification attracts a higher rate than the one being used. We review the HS classification of your product range and issue formal classification opinions to protect your position.
When goods are imported into the UAE mainland, two charges arise simultaneously: customs duty (typically 5% of the customs value of the goods, paid to UAE Customs at the point of import) and import VAT (5%, calculated on the customs value plus the duty amount, accounted for through the VAT return rather than paid at the border for VAT-registered importers). These are separate obligations administered by different authorities — UAE Customs for duty and the FTA for VAT. Businesses that are VAT-registered can recover the import VAT through their VAT return as input tax, subject to the normal recovery rules. Customs duty, however, is a cost — it cannot be recovered through the VAT system and is typically treated as part of the landed cost of the goods. Understanding both obligations and how they interact is essential for businesses with significant import activity.
VAT, Excise Tax or Customs Duty question?
Whether you need to register, fix an error in a past return, prepare for an FTA or Customs audit, review your import duty classifications, or get a health check on your indirect tax position — our team is ready to help. 📍