How is VAT calculated in the UAE? Learn the simple 5% formula, VAT inclusive vs VAT exclusive pricing, and how VAT payable works.
How Is VAT Calculated in the UAE?
How is VAT calculated?
In the UAE, VAT is usually calculated as 5% of the taxable value, and the VAT you pay to the Federal Tax Authority (FTA) is generally Output VAT minus recoverable Input VAT.
If you are a business owner in Dubai, Abu Dhabi, Sharjah, or a UAE free zone, this is important because VAT directly affects your pricing strategy, invoice structure, and cash flow.
In this guide, you will learn exactly how VAT is calculated on invoices, how to extract VAT from VAT-inclusive prices, and how VAT payable is calculated when filing your VAT return.
If you want VAT set up correctly from day one, contact TAXESMAN.
How Is VAT Calculated on a VAT-Exclusive Price?
When your invoice price is VAT exclusive, the calculation is straightforward.
VAT Formula (VAT Exclusive)
VAT amount = Net price × 5%
Total price = Net price + VAT
Quick Example (Dubai)
You charge a client AED 1,000 VAT exclusive.
VAT = 1,000 × 5% = AED 50
Total invoice amount = AED 1,050
If you want your invoices structured correctly with proper VAT wording and compliance, TAXESMAN can help.
How Is VAT Calculated When the Price Is VAT Inclusive?
Many UAE businesses advertise prices that already include VAT. In this case, VAT must be extracted from the total.
VAT Extraction Formula (5% VAT Inclusive)
VAT amount = VAT-inclusive price × 5 ÷ 105
Net price = VAT-inclusive price ÷ 1.05
Quick Example (Sharjah)
Total price charged = AED 1,050 (VAT inclusive).
Net price = 1,050 ÷ 1.05 = AED 1,000
VAT amount = AED 50
If you want TAXESMAN to review your pricing and ensure VAT-inclusive and VAT-exclusive calculations are consistent, contact us.
How Is VAT Calculated for a Business When Filing VAT Returns?
This is the most important calculation for VAT compliance.
When filing a VAT return (Form VAT201), the system captures:
• Total sales and output VAT (VAT charged to customers)
• Total purchases and input VAT (VAT paid on business expenses)
The difference determines whether VAT is payable or refundable.
Output VAT vs Input VAT
Output VAT is the VAT you collect from customers on taxable sales.
Input VAT is the VAT you pay on business expenses, subject to recovery rules.
If you want VAT returns that fully match your invoices and bookkeeping, TAXESMAN can handle it for you.
How Is VAT Payable Calculated for the FTA?
Once output VAT and recoverable input VAT are known, the net VAT calculation is simple.
Net VAT Formula
Net VAT payable = Output VAT − Recoverable Input VAT
Example (Abu Dhabi)
Output VAT collected: AED 1,200
Recoverable input VAT paid: AED 900
Net VAT payable to the FTA: AED 300
If you want this calculated accurately and filed without risk, contact TAXESMAN.
What Does “Recoverable Input VAT” Actually Mean?
When people ask how VAT is calculated, they often assume all VAT paid can be claimed back.
In reality, input VAT recovery depends on eligibility and valid tax invoices. Some expenses may be blocked or partially recoverable depending on the nature of your business.
Key practical points:
• Keep clear and valid supplier tax invoices
• Separate personal and business expenses
• Be careful if your business has mixed taxable and exempt activities
If you want a quick review of your input VAT eligibility, TAXESMAN can help.
Real Examples: How Is VAT Calculated in Common UAE Scenarios?
Dubai Example: Service Business Issuing Invoices
You issue an invoice for AED 20,000 VAT exclusive.
VAT = 20,000 × 5% = AED 1,000
Total invoice value = AED 21,000
Need help setting up compliant invoice templates and bookkeeping categories? Contact TAXESMAN.
Abu Dhabi Example: VAT-Inclusive Pricing
You sell a package for AED 5,250 VAT inclusive.
Net price = 5,250 ÷ 1.05 = AED 5,000
VAT amount = AED 250
Want TAXESMAN to validate your VAT-inclusive pricing across products or services? We can.
Sharjah Example: VAT Payable for the Quarter
VAT return shows:
Output VAT: AED 3,500
Recoverable input VAT: AED 2,700
Net VAT payable: AED 800
For a stress-free VAT return experience, TAXESMAN is here to help.
Free Zone Example: Same Calculation, More Attention
Free zone companies calculate VAT using the same formulas, but documentation and classification are often reviewed more closely.
If you operate in a free zone and want clarity, contact TAXESMAN.
Conclusion: How Is VAT Calculated?
To summarize, how is VAT calculated?
On invoices, VAT is usually 5% of the taxable value.
On VAT returns, VAT payable is typically output VAT minus recoverable input VAT.
To avoid errors, missed VAT recovery, or messy VAT returns, let TAXESMAN manage VAT calculation, bookkeeping, and filing for you.
FAQs: How Is VAT Calculated?
How is VAT calculated on an invoice in the UAE?
VAT is calculated as 5% of the taxable value and added to the net price.
How is VAT calculated if the price already includes VAT?
VAT is extracted using the formula: VAT-inclusive price × 5 ÷ 105.
How is VAT calculated for VAT returns?
VAT returns calculate net VAT as output VAT minus recoverable input VAT.
What is output VAT?
Output VAT is the VAT charged to customers on taxable sales.
What is input VAT?
Input VAT is the VAT paid on business expenses, subject to recovery rules and valid documentation.