The standard UAE VAT rate is 5% for standard-rated taxable supplies. If a price excludes VAT, calculating the tax is straightforward: multiply the amount by 5%. If a price already includes VAT, however, you should not simply subtract 5%. Instead, the VAT portion is extracted using 5/105, which at a 5% rate is the same as dividing the VAT-inclusive total by 21.
The arithmetic is simple once you know whether your starting figure is VAT-inclusive or VAT-exclusive. The more important question is whether 5% is actually the correct VAT treatment for the transaction.
The main formulas are:
The Federal Tax Authority also provides a public VAT calculator that shows the amount before tax, total after tax, and 5% VAT.
If the price is stated before VAT, use:
VAT Amount = VAT-exclusive price × 0.05
Then calculate the final price as:
Total including VAT = VAT-exclusive price + VAT
or simply:
Total including VAT = VAT-exclusive price × 1.05
Net price:
AED 1,000
VAT:
AED 1,000 × 5% = AED 50
Total including VAT:
AED 1,000 + AED 50 = AED 1,050
VAT:
AED 7,500 × 0.05 = AED 375
Total:
AED 7,500 + AED 375 = AED 7,875
The VAT charged on a customer transaction is generally output VAT for the supplier. However, that does not necessarily mean AED 375 is what the business ultimately pays to the FTA for the tax period. Recoverable input VAT and other applicable adjustments also affect the net VAT position.
The calculation changes when the amount already includes 5% VAT.
Use:
VAT = Gross Amount × 5/105
Because 5/105 simplifies to 1/21, you can also use:
VAT = Gross Amount ÷ 21
This method reflects the fact that the gross price represents 105% of the original net amount.
VAT-inclusive price:
AED 1,050
VAT included:
AED 1,050 ÷ 21 = AED 50
Net price:
AED 1,050 − AED 50 = AED 1,000
You can also find the net amount directly:
AED 1,050 ÷ 1.05 = AED 1,000
The FTA uses the 5/105 VAT fraction in its official guidance when tax needs to be extracted from a VAT-inclusive value, including in its current Profit Margin Scheme guide.
Suppose the total is AED 1,050.
If you calculate:
AED 1,050 × 5% = AED 52.50
you have not calculated the VAT contained in the price.
The original VAT was calculated on the AED 1,000 net amount, not on the final AED 1,050 total.
That is why extracting VAT requires 5/105, not 5/100.
The distinction determines which calculation you use.
Under Article 38 of the UAE VAT Decree-Law, the advertised price for a taxable supply is generally required to include VAT, with the Executive Regulation specifying circumstances where prices may be stated excluding tax. The current legislation is available through the FTA's VAT Decree-Law.
From a calculation perspective, the first step should therefore always be:
Is the amount I am looking at before VAT or already VAT-inclusive?
For VAT-exclusive prices:
For VAT-inclusive totals:
These examples assume the entire amount relates to a standard-rated supply subject to 5% VAT.
Where a valid discount reduces the consideration for a supply, the taxable value can also be reduced in accordance with the applicable VAT rules.
The FTA explains in its VAT-free special offers clarification that the value of a discount is the amount by which the consideration is reduced.
Consider this simple example.
Original VAT-exclusive price:
AED 1,000
Discount:
AED 100
Reduced taxable amount:
AED 900
VAT:
AED 900 × 5% = AED 45
Total after discount and VAT:
AED 945
The important point is that where the discount legitimately reduces the consideration, VAT is calculated using the reduced value.
More complex rebates, retrospective discounts, and invoice adjustments can involve additional VAT rules and should not automatically be treated using this simple example.
VAT calculations can produce fractions of a fils, particularly where an invoice contains many individual items.
The FTA's Tax Invoices public clarification states that rounding on tax invoices should be performed on a line-item basis to the nearest fils.
One dirham contains 100 fils.
For a multi-line invoice, finance teams should therefore avoid calculating approximate VAT on a manually rounded invoice total if the underlying invoice system is required to calculate and present tax at line level.
Consistent system configuration becomes especially useful where businesses issue large volumes of invoices with multiple taxable items.
The 5% formula does not apply to every transaction.
The FTA states that VAT generally applies at 5% unless a transaction qualifies for zero-rating or exemption under the VAT legislation. See the FTA's VAT FAQ.
A zero-rated transaction remains a taxable supply, but VAT is applied at 0%. Subject to the applicable rules, input VAT related to taxable supplies may still be recoverable.
No VAT is charged on an exempt supply. Input VAT relating to exempt activity is generally subject to recovery restrictions.
The distinction matters because treating an exempt transaction as though it were simply a “0% VAT sale” can lead to incorrect input-tax accounting.
Before doing the arithmetic, determine what VAT treatment actually applies.
Some transactions require more than multiplying a normal sales price by 5%.
Under a reverse-charge arrangement, the recipient may account for VAT instead of the supplier charging VAT in the usual way.
For qualifying goods under the UAE Profit Margin Scheme, VAT can be calculated on the profit margin rather than on the full selling price where all applicable conditions are satisfied.
The FTA's 2026 Profit Margin Scheme guide uses the VAT fraction:
VAT = Profit Margin × 5/105
or:
VAT = Profit Margin ÷ 21
Imports can involve specific rules for determining the taxable value and accounting for VAT.
These should not simply have 5% added because a business normally charges VAT.
The formula itself is rarely the difficult part. Identifying the correct VAT treatment and taxable value comes first.
Another common misunderstanding is to assume that the VAT charged on a sale equals the amount the business ultimately pays to the FTA.
Consider a simplified example.
Output VAT charged on sales:
AED 500
Eligible recoverable input VAT:
AED 300
Simplified net VAT position:
AED 500 − AED 300 = AED 200
The business collected AED 500 of output VAT, but after accounting for AED 300 of eligible recoverable input VAT, the simplified net position is AED 200.
Actual VAT-return calculations can also include imports, reverse-charge transactions, credit notes, adjustments, and other items.
HAL's broader Accounting in UAE guide covers the relationship between transaction records and VAT accounting in more detail.
Most VAT mistakes are not caused by difficulty multiplying a number by 0.05. They occur because the wrong starting amount or VAT treatment is used.
Common errors include:
A reliable calculation therefore starts with classification, then moves to the formula.
Accounting and invoicing software can reduce repetitive manual calculation where tax rates and transaction rules have been configured correctly.
HAL's current tax configuration documentation supports configurable tax rates and links tax configurations to appropriate input and output tax accounts. The documentation includes setups for 5%, 0%, and exempt treatments.
HAL Invoicing also supports invoice and credit-note workflows, while HAL Accounting connects the resulting transactions with wider financial records.
These capabilities can support consistent calculation and record keeping, but the business remains responsible for determining the correct UAE VAT treatment. HAL should not be treated as automatically determining every UAE tax position or guaranteeing VAT compliance.
For a standard-rated UAE transaction, the essential calculations are:
Add VAT: Net × 5%
Find the total: Net × 1.05
Extract VAT: Gross × 5/105 or Gross ÷ 21
Find the net amount: Gross ÷ 1.05
The arithmetic only works correctly after confirming that 5% is the applicable VAT treatment and whether the starting price already includes VAT.
HAL Invoicing and HAL Accounting can support configurable tax, invoice, and accounting records used in day-to-day VAT processing.
Book a HAL demo to explore how HAL can support your accounting and invoicing workflows.
For a VAT-exclusive standard-rated amount:
VAT = Price × 5%
For AED 1,000, the VAT is AED 50 and the total is AED 1,050.
Multiply the VAT-exclusive amount by 1.05.
For example:
AED 2,000 × 1.05 = AED 2,100
The VAT portion is AED 100.
Divide the total by 1.05 to calculate the net amount.
Alternatively, divide the gross amount by 21 to calculate the VAT portion directly.
If AED 1,000 is the VAT-exclusive amount, VAT is:
AED 1,000 × 5% = AED 50
The VAT-inclusive total is AED 1,050.
If AED 1,000 already includes 5% VAT:
VAT = AED 1,000 ÷ 21 = AED 47.62 approximately
The net amount is approximately:
AED 952.38
This is why 5% of the gross amount is not the correct way to extract included VAT.
No. The standard rate is 5%, but certain supplies qualify for 0% VAT, while others are exempt. Special transaction rules can also change how VAT is accounted for.
Yes. The Federal Tax Authority provides a public 5% VAT calculator on its official website.
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