How to Calculate VAT in UAE | Easy VAT Formula & Examples

How to Calculate VAT in UAE

VAT is a tax on the consumption of goods and services. It was introduced in the UAE in 2018. It now applies to most business transactions at a standard rate of 5 percent.

This blog explains how to calculate VAT in the UAE using simple formulas and examples.

What Is VAT?

VAT means Value Added Tax. It is a type of indirect tax added to the price of a good or service when a customer buys it. The customer will pay the VAT as part of the total price. The business will collect this tax and send it to the government. The process works through the supply chain as follows:

• A manufacturer adds VAT when selling to a wholesaler.
• The wholesaler adds VAT when selling to a retailer.
• The retailer includes VAT in the final price paid by the customer.
  
   

Standard VAT Rate in the UAE

• The standard VAT rate in the UAE is 5%. It applies to the sale and import of most goods and services in the country. A few items will fall under the zero-rated or exempt category as per the UAE VAT law.

Two Ways to Calculate VAT

Businesses in the UAE can calculate VAT in two different ways, depending on how prices are listed:

• VAT Exclusive Method: Use this when the sale price does not include VAT. You need to add VAT on top of the listed price.
• VAT Inclusive Method: Use this when the price already includes VAT. You need to extract the VAT portion from the total.

Method 1 – Sale Price Exclusive of VAT

This method applies when the sale price does not include VAT. The VAT will be calculated separately based on the sale price. The VAT amount will then be added to the original price to get the total payable.

Formulas

VAT Amount = Sale Price × VAT Rate

Total Amount Payable = Sale Price × (1 + VAT Rate)

Example

The price is AED 2000.

VAT is not added yet.

VAT rate is 5 percent.

1. Calculate the VAT:

AED 2,000 × 0.05 = AED 100

2. Add VAT to the price:

AED 2,000 + AED 100 = AED 2,100

Result:

• VAT Amount = AED 100
• Total Amount Payable = AED 2,100

Method 2 – Sale Price Inclusive of VAT

This method applies when the sale price already includes VAT. In this case, the VAT amount will be separated from the total to find the actual tax value and the net sale price.

Formulas

VAT Amount = Inclusive Price × (VAT Rate ÷ (100 + VAT Rate) )

Net Sale Price = Inclusive Price × (100 ÷ (100 + VAT Rate) )

Example

A product is sold for AED 1575 with VAT included at 5 percent.

Step 1 – Find the VAT amount:

AED 1,575 × (5 ÷ 105) = AED 75

Step 2 – Find the price before VAT:

AED 1,575 × (100 ÷ 105) = AED 1,500

Result:

• VAT Amount = AED 75
• Price Before VAT = AED 1,500

What Are Input VAT and Output VAT?

VAT works through input VAT and output VAT. Let’s see how with a few examples.

Input VAT

Input VAT is paid on goods or services bought for business use.

Example: A business purchases materials worth AED 5,000 + pays AED 250 in VAT (5%).

Output VAT

Output VAT is collected when a business sells goods or services.

Example: The same business sells finished products worth AED 10,000 + collects AED 500 in VAT (5%).

How to Calculate VAT Payable to the FTA

Here’s how a business will calculate the VAT it owes using a simple formula:

Formula

Total VAT to Pay = Output VAT – Input VAT
 

If Output VAT > Input VAT then the business will pay the difference to the Federal Tax Authority.

If Input VAT > Output VAT then the business will receive a VAT refund or carry the extra amount to the next tax period.

Example

• Output VAT collected = AED 1,200
• Input VAT paid = AED 900

Net VAT Payable = AED 1,200 – AED 900 = AED 300

So, the business must pay AED 300 to the FTA.

FAQs 

What is VAT rate in the UAE?

5% on most goods and services.

How to calculate VAT if not included in price?

Example: Multiply the sale price by 5%. Add it to the sale price to get the total.

How is VAT calculated when it is already included in the price?

Use this formula:

VAT = Inclusive Price × (5 ÷ 105)

How to find the price before VAT?

Use this formula:

Net Price = Inclusive Price × (100 ÷ 105)

Do all products have 5 percent VAT?

No. Some items are zero-rated or exempt. Check our UAE VAT blog for more details.