How to calculate VAT for your UAE small business

VAT was introduced in the UAE in January 2018 at a standard rate of 5%. For most small business owners, the mechanics are straightforward once you understand the three numbers that matter.

Output VAT

This is the VAT you collect from your customers. If you sell a product for AED 100, you charge AED 5 VAT on top. That AED 5 belongs to the FTA, not you.

Input VAT

This is the VAT you pay to your suppliers. If you buy stock for AED 200 plus AED 10 VAT, that AED 10 is recoverable, but only if you have a valid tax invoice with your supplier's TRN on it.

Net VAT Payable

Output VAT minus input VAT. This is what you actually send to the FTA each quarter.

Example for a Dubai cafe

Monthly sales: AED 80,000. Output VAT collected: AED 4,000.
Monthly supplier purchases with valid invoices: AED 30,000. Input VAT recoverable: AED 1,500.
Net VAT payable to FTA: AED 2,500.

The two mistakes that cost small businesses money

First, missing invoices. If a supplier charges you VAT but you do not have a valid invoice with their TRN, you cannot recover that input VAT. Every missing invoice is money left on the table.

Second, misclassifying exempt or zero-rated supplies. Not everything is standard rated. Some food items are zero rated. Financial services are exempt. Classifying these wrong inflates your VAT liability.

What you need to file correctly

Every expense transaction categorised as standard rated, zero rated, exempt, or out of scope. Every purchase invoice saved with the supplier TRN visible. A monthly reconciliation of bank transactions against invoices so nothing is missed.

Most small businesses in the UAE are doing this in a spreadsheet or not doing it at all. Compass automates this process. Every transaction you import from your bank statement gets a VAT classification. Missing invoices are flagged automatically. Your net VAT position is calculated in real time so there are no surprises at filing time.