Newly VAT-Registered Companies in the UAE: Compliance and Obligations for Decision Makers

Recommendation upfront: Treat VAT compliance as a core business process from day one. Set up airtight invoicing, records, filing calendars, and e-invoicing readiness now to avoid penalties, reduce audit risk, and safeguard cash flow as UAE enforcement tightens and digital reporting becomes mandatory.

Contributing Advisor

Jacob Thomas

Assistant Manager, Corporate Accounting Services

Why VAT compliance is board-level critical

The UAE’s Federal Tax Authority (FTA) has progressively refined rules, increased audit capability, and introduced digital controls that elevate expectations of accuracy, timeliness, and transparency. Early investment in systems, training, and governance minimises sanctions, prevents reputational damage, and ensures readiness for imminent e-invoicing mandates. The following guide distils the framework and expectations into actionable steps for decision makers.

Registration framework

Newly registered entities typically become subject to mandatory VAT registration once their taxable supplies and imports exceed AED 375,000 (USD 102,000) within the previous 12 months or are expected to surpass this threshold in the next 30 days. Businesses with taxable supplies or expenses of at least AED 187,500 (USD 51,000) may choose voluntary registration, which can offer strategic advantages such as input VAT recovery and improved market positioning—particularly for growth-stage firms and capital-intensive start-ups.

Non-resident businesses making taxable supplies in the UAE are generally required to register regardless of turnover thresholds. Organizations should ensure that the timing and scope of their registration—whether as a single entity or part of a tax group—are properly assessed and documented. Failure to register on time can lead to fixed and escalating penalties. It is also essential that the Tax Registration Number (TRN) is obtained, verified, and incorporated into all relevant systems and documents in compliance with legal requirements.

Immediate post-registration controls and governance

Once registered, embed the TRN into invoicing systems, credit notes, VAT returns, and customer/supplier master data. Establish a VAT governance framework with clear accountabilities: a senior sponsor (finance leader), VAT process owner, and controls over invoice issuance, coding, reconciliations, and filings. Institute a compliance calendar aligned to FTA deadlines and internal close processes to avoid last-minute filing scrambles.

Key policy areas to formalise:

• VAT determination rules for supplies, imports, exports, mixed activities, and disbursements.
• Approvals for credit/debit notes, corrections, and pricing adjustments.
• Document retention, data protection, and audit readiness standards.
• Escalation protocols for potential errors, refunds, or disputes.

VAT-compliant invoicing: What must appear and when

All invoices for taxable supplies must be clearly labeled as “Tax Invoice” and include all mandatory details:

• Supplier and customer information (including Tax Registration Numbers where applicable);
• A unique invoice number and date;
• A description of the supply;
• The net taxable amount;
• The VAT rate;
• The VAT amount; and,
• The gross total.

When invoices are issued in a foreign currency, the VAT amount must also be shown in AED, calculated using the UAE Central Bank exchange rate applicable on the date of supply.

Special attention is required for partial supplies, advance payments, and milestone-based billings, as these transactions demand careful management of tax points and invoice issuance timing. For business-to-consumer (B2C) transactions or low-value invoices, simplified formats may be used under defined thresholds, provided that proper controls are in place to ensure accurate categorization and disclosure.

To maintain compliance and operational efficiency, organizations should:

• Standardize and approve a tax invoice template within their ERP systems;
• Enforcing a 14-day issuance policy as best practice to align with emerging e-invoicing requirements; and,
• Exchange rate feeds and validation mechanisms must also be configured to ensure accuracy in foreign currency billing.

Record-keeping

UAE VAT regulations require organizations to maintain robust record retention practices. Complete transaction records must be preserved for at least five years after the end of the relevant tax period. Certain categories require extended retention—ten years for capital assets and fifteen years for real estate-related records. All records should be traceable from their original source documents, such as purchase orders, contracts, delivery notes, and bank statements, through to ledger entries and VAT return filings.

For imports and exports, it is essential to retain customs documentation, shipping records, and proof of export to substantiate zero-rated supplies.

To ensure compliance, businesses should:

• Establish a formal record retention schedule that clearly specifies the required retention period for each category.
• Digital recordkeeping systems must meet high standards of metadata integrity and searchability to enable rapid retrieval of documents when needed.
• Regular reviews—ideally on a quarterly basis—should be performed to confirm documentation completeness and the reliability of audit trails.

Filing VAT returns and paying on time

Most businesses file quarterly; some large companies may be assigned monthly filing based on turnover and FTA risk profiling. The filing and payment deadline is typically the 28th day following the end of the tax period.

• Build a controlled close process that reconciles sales, purchases, and VAT ledgers;
• Reviews zero-rated and exempt treatments;
• Validates exchange rates; and,
• Aligns returns with financials.

Submit and settle liabilities by the deadline via the FTA portal and approved payment channels.

The UAE penalty regime is stringent. Late payment triggers immediate and compounding charges, including fixed and percentage-based penalties that can escalate rapidly, capped at significant levels relative to unpaid tax. Late filing, failure to register, and poor records also carry fixed penalties.

Standard rate, zero-rating, and exemptions

Under the UAE VAT framework, the standard rate of 5 percent applies to most taxable supplies of goods and services. However, certain transactions qualify for zero-rating, meaning VAT is charged at 0 percent while allowing the business to recover related input VAT. These include exports of goods and certain services, international transport, designated healthcare and education services, and the first supply of residential buildings within three years of completion—provided all qualifying conditions and documentary requirements are met.

Some supplies are exempt from VAT, meaning no VAT is charged, and input VAT cannot be recovered. Exempt categories include specified financial services, residential property rentals (beyond the first supply), local passenger transport, and supplies of bare land. Misclassification between standard-rated, zero-rated, and exempt supplies can lead to compliance issues, cash flow disruption, and the loss of input VAT recovery rights.

To maintain compliance and accuracy, organizations should establish a VAT treatment matrix that clearly defines the VAT status of each product or service, taking into account customer type and transaction location. Documentary evidence must be maintained to support zero-rated supplies, particularly for exports and cross-border services. Regular monitoring of changes to the Executive Regulations is also essential, as these updates often refine the VAT treatment for specific sectors and activities.

Penalties: What decision makers must know

The UAE maintains a comprehensive penalty framework covering administrative breaches, late filings, late payment, failure to register, improper invoicing, and deficient record-keeping. Indicative penalties include:

To minimize compliance risks, the organization implements several proactive measures. Internal deadline buffers and automated reminders are established to ensure all submissions are completed well ahead of official deadlines. A dual-review signoff process is in place for all returns to enhance accuracy and accountability. In cases where errors are identified, immediate remediation actions are taken in accordance with Federal Tax Authority (FTA) procedures, including making corrections and submitting voluntary disclosures where applicable.

E-Invoicing

The UAE is rolling out mandatory e-invoicing through phased implementation windows that will require businesses to adopt compliant systems, formats, and integrations with Accredited Service Providers (ASPs). Emerging features include:

• Structured data formats (e.g., XML/JSON aligned to UBL/PINT profiles).
• Tight issuance timelines (commonly 14 days) and continuous transaction controls.
• Local data storage requirements and cyber-governance responsibilities.
• Scope and exclusions defined by ministerial decisions with sectoral and B2C nuances.

Businesses preparing for VAT compliance should begin by conducting a comprehensive readiness assessment. This review should evaluate ERP capabilities, data accuracy, master data integrity, invoice workflows, and record-keeping processes to ensure that systems can support the full VAT lifecycle.

Following the assessment, the organization should select an approved service provider (ASP) and plan for system integrations that include thorough testing, change management, and staff training to ensure a smooth transition. In parallel, privacy and information security frameworks must be updated to meet regulatory expectations around data residency, protection, and audit accessibility.

FTA audits

The FTA conducts desk and field audits, often triggered by refund claims, anomalies in returns, repeated delays, or sectoral risk indicators. Audits typically request transaction listings, invoices, credit notes, contracts, import/export evidence, bank statements, VAT workings, and reconciliations spanning up to five prior years. Decision makers should require:

• Annual mock audits to test documentation completeness, VAT logic, and system outputs.
• Reconciliation packs that bridge VAT returns to trial balance and statutory accounts.
• A designated audit response team with clear roles, timelines, and communication protocols.

Integrated VAT compliance operating model

A practical 90-day action plan for newly registered companies

• Days 1–30: Confirm registration scope and TRN embedding; implement invoice templates; map VAT treatments; set up the compliance calendar; begin record retention and documentation protocols; train core finance staff.
• Days 31–60: Configure ERP VAT codes and reporting; test return preparation; establish reconciliation routines; perform a mini mock audit; fix master data gaps (customer/supplier TRNs, addresses).
• Days 61–90: Run a full dry run of quarter-end VAT close; validate exchange rates and cross-border documentation; review penalty exposure and contingency plans; begin e-invoicing readiness assessment and ASP market scan.