What Is the Difference Between VAT and CIT in the UAE
- 15.08.2026
- Posted by: Uwe Hohmann
- Categories: Tax, Dubai
Two taxes shape UAE businesses, and they are regularly confused with each other. VAT (Value Added Tax) has been in effect since 01.01.18, while CIT (Corporate Income Tax) applies to financial years starting on or after 01.06.23. They work in different ways, and treating them as a single obligation is a common mistake.
VAT and CIT at a Glance
The table below sets out the main differences before we look at each point in more detail.
| VAT (Value Added Tax) | CIT (Corporate Income Tax) | |
|---|---|---|
| What is taxed | Each sale of goods or services | Annual profit of the business |
| In force since | 01.01.2018 | Financial years starting on or after 01.06.2023 |
| Rate | 5% standard, with zero rated and exempt supplies | 0% on the first AED 375,000 of taxable income, 9% above that |
| Registration | Mandatory above AED 375,000 of taxable supplies, voluntary from AED 187,500 | Required for every taxable person, regardless of profit |
| Who carries the cost | The customer, since the business collects and remits | The business, as a direct charge against profit |
| Filing frequency | Usually quarterly, for larger businesses – monthly | Annually |
| Deadline | 28 days after the end of the tax period | 9 months after the financial year end |
| Free zone position | Standard rules apply, with specific treatment for goods in designated zones | 9% for most 0% on qualifying income if strict rules for a QFZP (Qualifying Free Zone Person) are met |
| Effect of a loss | Still payable on taxable sales made | No tax due, losses may be carried forward |
Two Taxes, Two Completely Different Bases
VAT is a tax on transactions. It attaches to the sale of goods and services, and it applies whether or not the business is profitable.
CIT is a tax on profit. It looks at what remains once allowable costs are deducted from income across a full financial year.
A company can record a loss for the year and still owe VAT to the FTA (Federal Tax Authority) every quarter because VAT is based on sales rather than performance. Equally, a company can sell almost entirely outside the UAE, register very little VAT, and still face a meaningful CIT liability on its profit.
Rates and Thresholds
VAT is charged at a standard rate of 5% on most goods and services, with certain supplies zero-rated or exempt. Registration becomes mandatory once taxable supplies and imports exceed AED 375,000 across a rolling 12-month period, and voluntary registration is available from AED 187,500.
CIT is charged at 0% on the first AED 375,000 of taxable income and at 9% on anything above that. A QFZP can apply 0% to qualifying income, provided substance, audit and transfer pricing conditions are met, and non-qualifying revenue stays within the lower of AED 5,000,000 or 5% of total revenue. Multinational groups with consolidated revenue of at least EUR 750 million are subject to a separate DMTT (Domestic Minimum Top-up Tax) of 15%.
The figure AED 375,000 appears in both regimes, which is why it often causes confusion.
Under VAT, it refers to revenue, and it triggers a duty to register.
Under CIT, taxable income refers to the amount that marks the point where the 9% rate begins.
Who Actually Carries the Cost
Under VAT, the business acts as a collector rather than the taxpayer. It charges the customer 5%, recovers the VAT paid on its own purchases, and remits the difference. Where input tax is properly recovered, the real burden of VAT is administrative rather than financial.
CIT is different. It is a direct cost to the company. It reduces distributable profit, it affects cash flow planning, and it cannot be passed on to the customer. For many owner-managed companies, this is the first time that a share of annual profit must be set aside for tax.
Registration, Filing and Deadlines
VAT registration produces a TRN (Tax Registration Number) that must appear on tax invoices. VAT is usually filed quarterly, with some larger businesses filing monthly, and both filing and payment are due within 28 days of the end of each tax period. VAT therefore becomes a recurring operational rhythm rather than an annual event.
CIT works on an annual cycle. The CIT filing and the payment are both due within 9 months of the financial year-end, so a company with a year-end of 31.12.25 must file and pay by 30.09.26. Registration is required even where no tax is payable, which regularly catches out free zone companies that assume automatic exemption. A 0% outcome still has to be filed.
Where Businesses Get This Wrong
The most common error is assuming that a single registration covers both taxes.
They involve separate registrations, separate filings, separate deadlines and separate penalty regimes, even though both are administered through the same EmaraTax portal.
The second error concerns Small Business Relief. UAE resident businesses with revenue of AED 3,000,000 or less can elect to be treated as having no taxable income, and MD (Ministerial Decision) 131 has extended that relief to tax periods ending on or before 31.12.29. The threshold has not moved with it. AED 3,000,000 remains the limit in nominal terms, and exceeding it in any single period ends the relief permanently.
The third error is record-keeping. VAT rewards accurate transaction-level records. CIT depends on properly prepared financial statements. Businesses that treat bookkeeping as a year-end exercise tend to struggle with both, and the move towards mandatory electronic invoicing over the coming filing cycles makes that weakness harder to hide.
TME Services - Your Complete Business Partner
VAT and CIT ask different questions of the same company.
VAT asks what was sold and when.
CIT asks what was earned across the year and what remains after allowable deductions.
Handling one obligation well does not mean the other is under control.
TME Services advises business owners across the UAE on VAT and CIT compliance obligations.
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