How to Calculate VAT in the UAE Without Getting the 5% Backwards

To calculate VAT in the UAE, multiply the net price by 0.05 to get the 5% tax, or multiply by 1.05 to get the total the customer pays. To find the VAT inside a total that already includes it, divide that total by 21, or divide by 1.05 and subtract the result. Never take 5% off a VAT-inclusive figure.

That is the whole of it in four sentences. The reason this question keeps coming back is that the arithmetic is trivial and the context is not. Whether you multiply or divide depends on how the price was advertised, and UAE law has a default position on that. Discounts, mixed-rate invoices, imports, foreign currency and rounding each bend the calculation slightly. This guide walks through every one of them with worked numbers, and each rule is tied back to the article of law it comes from. If you want the answer without the arithmetic, our UAE VAT calculator does the same job in a browser. And if you are working out the wider position rather than a single invoice, our complete guide to VAT in UAE covers registration, exemptions and filing deadlines alongside the rate.

The only rate you need is 5%, and the law is specific about where it sits

Article 3 of Federal Decree-Law No. 8 of 2017, as amended by Federal Decree-Law No. 16 of 2024 and published by the Ministry of Finance, reads: “a standard rate of 5% Tax shall be imposed on any supply or Import pursuant to Article 2 of this Decree-Law on the value of the supply or Import.” There is no reduced rate and no sliding scale. Some supplies are zero-rated and some are exempt, which we come to later, but nothing in the UAE is taxed at 3% or 8%.

The second half of that sentence is the part people skip. The 5% applies to the value of the supply, and Article 34 defines that value: where the consideration is entirely monetary, “the value of the supply shall be the Consideration less the Tax.” The tax is not part of its own base. Every reverse calculation in this article follows from that one line.

The figures the calculation rests on

Every number below is taken from the Federal Tax Authority’s own published legislation. Figures confirmed against the FTA texts as at 3 August 2026; always check the current version before relying on a threshold in a filing.

If you are still working out whether you have to charge VAT at all, our guide to the VAT registration threshold in the UAE explains how the AED 375,000 figure is measured across a rolling twelve months.

How to calculate VAT in the UAE on a price that excludes tax

This is the straightforward direction, and it is how most B2B quotes in the UAE are written. You have a net figure and you are adding the tax on top.

The VAT is the net multiplied by 0.05. The total is the net multiplied by 1.05.

Take an equipment supply quoted by a UAE trading company at AED 12,400 excluding VAT:

• VAT: 12,400 × 0.05 = AED 620
• Invoice total: 12,400 + 620 = AED 13,020, or 12,400 × 1.05 in one step

Your tax invoice has to show the net value and the tax value for that line. Under VATP006 the gross is not mandatory on a full tax invoice, though most accounting systems print it anyway and there is no harm in that. The full list of what a compliant invoice must carry is set out in our guide to tax invoice requirements in the UAE, and our tax invoice generator builds one to the required format.

How to calculate VAT on a total amount that already includes it

Retail receipts, restaurant bills, most consumer subscriptions and any price shown to a member of the public in the UAE are VAT-inclusive by default. Here you are extracting tax that is already sitting inside the number.

Divide the total by 21. That is the entire method.

Take the same supply, this time billed at AED 13,020 including VAT:

• VAT: 13,020 ÷ 21 = AED 620
• Net value: 13,020 − 620 = AED 12,400

You can get to the same place by dividing the total by 1.05 to reach the net and subtracting. 13,020 ÷ 1.05 = 12,400, and 13,020 − 12,400 = 620. Use whichever you find easier to check by eye. On a spreadsheet the divisor form is less error-prone because it is a single cell reference. If you would rather not do it by hand at all, our VAT calculator for the UAE takes either an inclusive or an exclusive amount and returns the net, the tax and the gross together.

Why 21 works, and why it is not 20

The confusion is understandable. Five percent is one-twentieth, so people divide by 20 and get a number that looks close enough to pass a glance. It is one-twentieth of the net, not of the gross.

Set the net at 100. The VAT is 5. The total is 105. The VAT is therefore 5 out of every 105 dirhams collected, and 5/105 reduces to 1/21. Divide AED 13,020 by 20 and you get AED 651, which is the same wrong answer as taking 5% of the gross. Divide by 21 and you get AED 620.

Which method applies depends on how the price was advertised

Article 38 of the Decree-Law and Article 27(1) of the Executive Regulation both start from the same default: published and advertised prices for a taxable supply include the tax. Article 27(2) then carves out two optional exceptions where you may display prices exclusive of tax. The first is the supply of goods or services for export. The second is where the customer is a registrant. Article 27(3) attaches a condition to both, which is that the price “should be clearly identified as being exclusive of Tax.”

There is also a mandatory exclusive case in Article 27(4), covering supplies of concerned goods and concerned services that fall under the reverse charge in Article 48 of the Decree-Law.

In day-to-day terms, this means a shop window price in Dubai is inclusive and you divide by 21, while a B2B proposal marked “excluding VAT” is exclusive and you multiply by 0.05. When a supplier’s document is silent, the safe reading is inclusive, because that is the legal default and the burden sits with whoever wanted to display otherwise.

Rounding is a rule, not a preference

Article 61 of the Executive Regulation is one sentence: “Where the Tax chargeable on a supply is calculated to a fraction of a Fils, the Taxable Person is permitted to round the amount to the nearest Fils on a mathematical rounding.”

VATP006 then explains what that means in practice. Because the tax value should be calculated line by line on a full tax invoice, the rounding, if performed, should also be done line by line. Mathematical rounding to the nearest whole fils means two decimal places. The FTA’s own worked examples are AED 2.357 becoming AED 2.36, and AED 9.862 becoming AED 9.86.

So a line at AED 47.15 attracts VAT of 2.3575, which you round to AED 2.36. What you should not do is round some lines and total others, or switch between line-level and invoice-level rounding within the same document. Inconsistency is what makes a reconciliation fail, not the half-fils itself.

One more rounding-adjacent trap sits in VATP006: a tax invoice issued in a foreign currency must show the tax amount converted to AED, together with the exchange rate used, applying the rates published by the UAE Central Bank on the date of supply. Invoices that show the tax only in the foreign currency are not valid tax invoices for VAT purposes.

Discounts reduce the value before you apply the 5%

Article 39 provides that where discounts are granted before or after the date of supply, the value of the supply is reduced in proportion. The order of operations is therefore discount first, tax second.

A list price of AED 20,000 with a 15% trade discount:

• Discount: 20,000 × 0.15 = AED 3,000
• Taxable value: 20,000 − 3,000 = AED 17,000
• VAT: 17,000 × 0.05 = AED 850
• Total: AED 17,850

Calculate the VAT on AED 20,000 first and you get AED 1,000, which is AED 150 of output tax you never collected. Discounts granted after the invoice has already gone out are handled through a tax credit note rather than by editing the original document.

An invoice with mixed rates has to be calculated line by line

Plenty of UAE invoices carry more than one treatment. A software company might bill local IT support at the standard rate on one line and a qualifying export of services at zero on the next.

The invoice total is AED 49,500, of which AED 1,500 is tax. Zero-rated supplies under Article 45 of the Decree-Law still belong in the return and still count towards the registration threshold, even though the tax on them is nil. Exempt supplies under Article 46, which include certain financial services, the supply of bare land and local passenger transport, are a different animal and restrict input recovery. Our guide to zero-rated versus exempt supplies in the UAE sets out the practical consequences of getting the two confused.

Calculating the VAT you charge yourself under the reverse charge

Article 48 of the Decree-Law says that a taxable person importing concerned goods or concerned services for the purposes of his business “shall be treated as making a Taxable Supply to himself.” The 5% calculation does not change. What changes is that you appear on both sides of it.

Take an imported software licence billed by an overseas vendor at AED 60,000 with no UAE VAT on the invoice:

• VAT you self-account for: 60,000 × 0.05 = AED 3,000 declared as output tax
• VAT you recover, where the cost supports taxable activity: AED 3,000 claimed as input tax
• Net cash effect: nil

The cash outcome is usually neutral, which is exactly why the entry gets forgotten. It is still a reporting error to leave it out, and mismatches here are a well-known query trigger. The mechanics are covered in detail in our guide to the reverse charge mechanism in the UAE. Goods arriving through customs follow a related but distinct path, explained in VAT on imports and customs in the UAE.

The profit margin scheme puts the VAT inside the margin

Article 29 of the Executive Regulation lets a taxable person calculate tax by reference to the profit margin on eligible second-hand goods, antiques over 50 years old, and collectors’ items, where those goods were bought from a non-registrant or from someone who themselves used the margin scheme. Article 29(4) defines the margin as the difference between purchase price and selling price, and states that it “shall be deemed to be inclusive of Tax.”

A dealer buys a used machine for AED 42,000 from an unregistered seller and sells it for AED 52,500:

• Margin: 52,500 − 42,000 = AED 10,500
• VAT inside the margin: 10,500 ÷ 21 = AED 500

Note that this is the inclusive formula again, applied to the margin rather than the price. You cannot show that tax separately on the invoice, and the record-keeping obligations in Article 29(5) are strict. Our guide to the VAT profit margin scheme in the UAE covers eligibility properly.

Putting it together: what you actually pay the FTA

Individual invoice arithmetic is the easy part. The figure that leaves your bank account each quarter is output VAT minus recoverable input VAT, and the word doing the work in that sentence is “recoverable.”

Article 55 of the Decree-Law sets the conditions for recovery, including that you receive and retain a valid tax invoice. The blocking provision is a different instrument and it is worth naming precisely, because the numbering collides: Article 53 of the Executive Regulation, Cabinet Decision No. 52 of 2017, is the one that stops recovery, while Article 53 of the Decree-Law is the ordinary calculation of payable tax.

Article 53 of the Executive Regulation blocks recovery outright in three situations: entertainment services provided to anyone not employed by you, including customers, potential customers, officials and shareholders; a motor vehicle purchased, rented or leased for use in the business that is also available for personal use by any person; and goods or services bought to be used by employees free of charge for their personal benefit.

That third head has four exceptions, and the fourth is the one most UAE employers rely on without knowing it. Recovery survives where the provision is a legal obligation under applicable labour law, where it is a contractual obligation or documented policy needed for the role and provable as normal business practice, where the taxable person provides health insurance including enhanced cover to employees and their family members up to one wife and three children under eighteen, and where the provision is a deemed supply.

[[chart:vat-quarter-math]]

Run the numbers for one quarter:

• Output VAT charged on sales: AED 96,300
• Input VAT appearing on purchase invoices: AED 47,950
• Blocked input VAT under Article 53 of the Executive Regulation, removed: AED 6,200
• Recoverable input VAT: 47,950 − 6,200 = AED 41,750
• Net VAT payable: 96,300 − 41,750 = AED 54,550

Claim the blocked AED 6,200 by mistake and you have understated the liability by that amount. The distinction between the two sides of this calculation is set out in input VAT and output VAT in the UAE, and the conditions for reclaiming are unpacked further in input VAT recovery in the UAE. The figure then goes into the return, which our VAT return filing guide walks through box by box, and the payment itself is covered in how to pay VAT in the UAE.

Converting a foreign-currency invoice before you calculate anything

Plenty of UAE businesses invoice in dollars or euros and then try to work the VAT in that currency. The law does not permit it to stop there. Article 69 of Federal Decree-Law No. 8 of 2017 is one sentence and it is unambiguous: where the supply is in a currency other than the UAE Dirham, the amount stated in the tax invoice “shall be converted into the UAE Dirham according to the exchange rate approved by the Central Bank of the State at the date of supply.”

Two things follow. The rate is the Central Bank’s, not your bank’s and not the one your accounting system pulled overnight. And the date is the date of supply, not the date you raised the invoice, the date the customer paid, or the date you closed the month.

Work an example. You invoice a Saudi client USD 40,000 for consultancy performed in Dubai, so the supply is standard-rated. Suppose the Central Bank rate at the date of supply is 3.6725 dirhams to the dollar. The AED value is 40,000 × 3.6725 = AED 146,900, VAT at 5 per cent is AED 7,345, and the invoice must show that dirham tax figure whatever currency the rest of the document is in.

Each row is drawn from Article 69 of Federal Decree-Law No. 8 of 2017 as published by the Ministry of Finance and read on 4 August 2026. The USD rate used in the worked example above is illustrative — take the live rate from the Central Bank of the UAE for the actual date of supply.

The date the calculation attaches to, and the clock that starts from it

Every VAT calculation belongs to a date, and the date decides the tax period it falls into. Article 25 of the Decree-Law sets the general rule: tax is calculated on the date of supply, which is the earliest of a list that includes the date goods were transferred or placed at the recipient’s disposal, the date services were completed, and the date of receipt of payment or of issuing the tax invoice.

That last limb catches more UAE businesses than the rest combined. Take a deposit in March for work you will deliver in May and the date of supply for the deposit is March, because payment was received. The VAT belongs in the March quarter whether or not anything has been delivered.

Article 26 handles the recurring cases. For a contract with periodic payments or consecutive invoices — a retainer, a lease, an annual licence billed monthly — the date of supply is the earliest of the invoice date, the payment due date shown on the invoice, the date payment is received, and the expiry of one year from when the goods or services were provided.

Every row above was read from Federal Decree-Law No. 8 of 2017 and its amendments, as published by the Ministry of Finance, on 4 August 2026.

Once the date fixes the tax period, the deadline follows mechanically. The standard tax period is three calendar months under Article 62 of the Executive Regulation, and Article 64 of the same Executive Regulation requires the return to reach the Federal Tax Authority no later than the 28th day following the end of that period, with the payment due by the same date.

So a quarter ending 31 March is filed and paid by 28 April. A quarter ending 30 June is due by 28 July. The arithmetic on each invoice is trivial; the date it lands on decides which of those two deadlines it is measured against.

The calculation errors we see most often

Six patterns account for most of the corrections that come across our desk.

The first is treating an inclusive till total as exclusive, which inflates output tax by roughly 5% of the tax figure. The second is dividing an inclusive total by 20 instead of 21, which produces the same overstatement by a different route. Third is applying the 5% before a discount rather than after it. Fourth is rounding at the invoice total on some documents and at line level on others, so nothing reconciles at quarter end. Fifth is foreign-currency invoices that never show the AED tax value or the Central Bank rate used. Sixth, and the most expensive, is including blocked input tax from Article 53 of the Executive Regulation in the recovery figure.

None of these are conceptual failures. They are template failures, and a template is fixed once.

When the arithmetic stops being the hard part

The 5% never changes. What changes is the classification sitting underneath it, and that is where a calculation quietly becomes a compliance question. Is a service supplied to an overseas client genuinely zero-rated, or is it standard-rated because it was performed in the UAE? Is a free-zone movement a supply at all? Should a bundled contract be treated as one composite supply taxed at the principal component’s rate, or split into separate supplies?

Our team supports UAE businesses with VAT advisory and compliance work, from reviewing how your invoicing system applies the 5% through to preparing the quarterly return. If you would like someone to check the treatment before the return goes in, get a quote and we will look at your actual invoices rather than the theory.