The UAE is set to implement a range of significant alterations starting in January 2025, which will enhance the country's future by improving healthcare, safeguarding the environment, and boosting the economy. The new taxes will restructure the financial landscape for Multinational enterprises.

If you’re thinking of expanding your business in the United Arab Emirates, you need to have good knowledge of the country’s VAT system.

VAT in UAE – Everything we need to know

The United Arab Emirates is known for being a tax-friendly country. In 2018, the implementation of Value Added Tax (VAT) across the UAE was introduced on January 1st at a standard rate of 5%.

VAT is a form of consumption tax on the transactions of goods and services. In recent years, the UAE government has made a few changes. Ever since the implementation, every business, whether small or large, has been legally responsible for registering the VAT or will be accountable for paying hefty penalties according to the FTA regulations.

The new taxes are already in the implementing phases, which began on January 1st, 2025, and are part of the Domestic Minimum Top-Up Tax (DMTT) framework. The DMTT targets specifically large multinational companies, leaving small and medium enterprises unaffected.

The steps to implement VAT for a new user are as follows:

1. Register for VAT in the UAE,
2. Determine if the business meets the VAT threshold. If it does, collect all required documents such as a business license and financial records.
3. Finally, apply online through the FTA's e-Services.

VAT Calculator

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Tax is used by the Government to raise revenue for public services. They are mainly classified into two types;

• Direct Tax: Tax collected by the Government from the person on whom it is imposed. Eg: corporate tax, income tax
• Indirect Tax: also known as Value Added Tax, and is mainly categorized as general consumption tax.

Around 150 countries have implemented VAT, including 29 European Union (EU) members namely Canada, New Zealand, Australia, Singapore, and Malaysia.

The value-added rate in the UAE is 5%, which is considered the lowest among other countries and is usually charged at each step of the supply chain. A VAT-registered company must collect the tax established by the government at 5% on goods and services. It is mandatory to maintain records of every transaction where VAT is paid.

How to use the VAT calculator in UAE?

VAT calculator is a reliable and easy-to-use tool used in day-to-day business for establishments to perform VAT calculations and to know the total VAT amount. Understanding the core importance of Value Added Tax (VAT) and making precise calculations is important for financial management.

As per the UAE law, the standard rate of VAT is 5 %. UAE VAT calculator has two options namely ADD VAT or Subtract VAT.

Steps to use the VAT Calculator:

1. Enter the amount to be calculated
2. Choose the type of calculation: Add VAT to the amount or extract VAT from a total amount
3. Calculate: the VAT amount and the final price including the VAT

The difference between the VAT collected and the VAT paid is either refunded or given to the tax authorities. The value-added tax is a consumption tax collected at each stage of the supply chain, with businesses collecting VAT on their sales and paying VAT on their purchases.

The major difference between the VAT collected and VAT paid by a business is calculated frequently. This is why it is important to know how to calculate the VAT.

The measure for the new tax has the most significant impact in Multinational enterprises operating in Dubai, UAE. Few Rules to be followed by the MNEs are compliance with Global Tax laws and increased operating costs.

Tally Prime 5.1 – VAT Enabled Business Solution

Tally Prime by Tally Solutions is user-friendly and specifically designed even for individuals with no background in IT or accounting. By spending just a few minutes reviewing helpful information, business owners can easily identify areas that need attention.

Three steps to follow before starting to use Tally Prime:

• Download,
• Install, and
• Start transacting.

Tally Prime is a comprehensive business management software that includes features for accounting, inventory, statutory compliance, banking, payroll, and more. With a Multi-user License, you can have unlimited users on the same LAN environment, allowing for a larger volume of transactions. Tally Prime has been extensively tested to ensure reliability and trustworthiness. Even in the event of unexpected issues such as network disruptions, power failures, or system reboots, your data will remain safe and free from corruption. Tally Prime enables real-time and secure access to crucial business reports from a web browser, on any device, anywhere. It is user-friendly and can be easily learned and operated by anyone.

Example for E-commerce Purchase:

A customer orders a laptop online from a UAE-based e-commerce store for AED 4,000. With a 5% VAT, the customer pays an additional AED 200, making the total AED 4,200. The e-commerce store must collect and report the VAT.

Penieltech

Peniel Technology delivers exceptional services to the customers in the UAE by providing training on Tally Prime Gold. Tally accounting software is used in the UAE globally and is favored by organizations of varying scales. We recently launched the product, Tally Prime 5.1, an improved version of Tally.ERP 9. It helps the people to work faster and achieve better results.

Tally Accounting software and support are also available in Dubai, Oman. Contact us for further queries on Tally Prime with Penieltech - www.penieltech.com.

Other than TallyPrime we offer ERP Software, VAT Accounting Software, Invoicing Software, VAT Consultant, and VAT Services. Tally prime can be used by Single and multi-user.

FAQs on New Taxes in UAE in 2025

What are the latest Taxes implemented in 2025?

The UAE has put its New Year resolution in place and has implemented DMTT (Domestic minimum top-up tax) in Dubai on January 1, 2025. It reflects the adoption of the Organization for Economic Cooperation and Development's pillar solution. DMTT is targeted specifically at large multinational companies, leaving small and medium enterprises unaffected.

How does the Domestic Minimum Top-up Tax work?

A top-up Tax is charged on an MNE group when its ETR in jurisdiction is below the 15% minimum rate. This is the first step in jurisdiction.

What are the expectations available under the new taxes in Dubai?

The Government of Dubai has introduced new taxes to prevent small and medium enterprises from being overwhelmed.

1. Small and Medium Enterprises: SMEs with annual global revenues below AED 3 billion are exempt from these taxes.
2. Domestic companies that operate solely within the UAE and do not meet the revenue threshold are not subject to the Domestic minimum top - up tax (DMTT).
3. Free zone entities and companies operating in specified free zones while complying with local regulations will maintain their current tax benefits.

What are the challenges faced after implementing the new taxes in Dubai?

Even with the latest implementation of the tax system, there are challenges linked as well:

1. Businesses can face challenges in practicing or understanding the new regulations.
2. Needs to allocate additional resources to meet the compliance requirements.

What penalties will the business have to face if not comply with the new taxes?

Small and Medium Enterprises if not compelled by the new taxes in Dubai may face severe penalties, including fines and potential restrictions on operations.

To avoid penalties by the Government, ensure timely compliance by seeking professional guidance.