UAE VAT is recorded in three accounts: input VAT, output VAT and the amount owed to or by the FTA. Every taxable invoice posts to the first two, and each period they are netted into the third. This guide shows the standard journals with worked figures at 5%, so your ledger can support the VAT return line by line.
The accounts you need
| Account | Type | Holds |
|---|---|---|
| VAT Input (Recoverable) | Current asset | VAT paid on purchases that you can recover |
| VAT Output | Current liability | VAT charged on your sales |
| VAT Payable / Receivable (FTA) | Liability or asset | The net amount due to or from the FTA |
Keep input VAT and output VAT as separate accounts. Netting them on posting makes the return impossible to reconcile. For the wider ledger structure, see the chart of accounts guide.
A taxable purchase
You buy services for AED 1,000 plus 5% VAT and the supplier invoices AED 1,050.
| Account | Debit | Credit |
|---|---|---|
| Expense | 1,000 | |
| VAT Input | 50 | |
| Accounts payable | 1,050 |
A taxable sale
You invoice AED 2,000 plus 5% VAT, a total of AED 2,100.
| Account | Debit | Credit |
|---|---|---|
| Accounts receivable | 2,100 | |
| Revenue | 2,000 | |
| VAT Output | 100 |
A zero-rated sale
An export of AED 5,000 at 0%. No VAT account is touched, but the sale must be flagged zero-rated so it appears in the right box of the return.
| Account | Debit | Credit |
|---|---|---|
| Accounts receivable | 5,000 | |
| Revenue (zero-rated) | 5,000 |
See zero-rated, exempt and out-of-scope supplies for what qualifies.
Reverse charge
You buy AED 1,000 of services from a supplier outside the UAE who charges no VAT. You account for the VAT yourself, and if the cost is recoverable the two VAT lines cancel in cash terms.
| Account | Debit | Credit |
|---|---|---|
| Expense | 1,000 | |
| VAT Input (reverse charge) | 50 | |
| VAT Output (reverse charge) | 50 | |
| Accounts payable (foreign supplier) | 1,000 |
The mechanism is explained in the reverse charge guide.
Blocked input VAT
If the VAT cannot be recovered, it becomes part of the cost. An entertainment invoice of AED 1,050 posts entirely to expense.
| Account | Debit | Credit |
|---|---|---|
| Expense (including VAT) | 1,050 | |
| Accounts payable | 1,050 |
See blocked input VAT for the categories.
Credit notes
A credit note reverses the original entry. A credit note to a customer for AED 200 plus AED 10 VAT debits revenue 200 and VAT Output 10 and credits receivables 210. Mismatched credit notes are a common return error; see VAT credit and debit notes.
The period-end settlement
At the end of each tax period, clear input and output into the FTA account. If output is AED 12,000 and recoverable input is AED 7,500, AED 4,500 is payable.
| Account | Debit | Credit |
|---|---|---|
| VAT Output | 12,000 | |
| VAT Input | 7,500 | |
| VAT Payable (FTA) | 4,500 |
On payment, debit VAT Payable and credit the bank. If input exceeds output, the balance is a receivable until refunded or offset; see how to claim a VAT refund.
Controls that make the return reconcile
- Use tax codes on every line: standard, zero-rated, exempt, out of scope, reverse charge, blocked.
- Reconcile the VAT accounts to the return before filing.
- Investigate any difference between ledger VAT and return VAT; it is the first thing an auditor tests.
Software choice matters less than code discipline; see the FTA-approved accounting software guide. Our bookkeeping team maintains the VAT accounts as part of the monthly close.
Import VAT
VAT paid at customs on imported goods is recoverable input tax if the goods are for a taxable business purpose. Record it from the customs declaration rather than a supplier invoice.
| Account | Debit | Credit |
|---|---|---|
| Inventory | 10,000 | |
| VAT Input (import) | 500 | |
| Bank or customs account | 10,500 |
Bad debt relief
When a customer does not pay, the VAT you accounted for on the sale can be reclaimed once conditions are met, including a period of non-payment and a write-off in your books. The entry reverses the output VAT: debit VAT Output, debit bad debt expense for the net amount and credit receivables. See VAT bad debt relief for the conditions.
Partially recoverable input VAT
If only part of the input VAT is recoverable, split the invoice VAT between VAT Input and expense. A business with 60% recovery posts 60% of the VAT to VAT Input and the rest to the cost.
Reconciling the ledger to the return
- Total standard-rated sales in the ledger equals the return.
- VAT Output equals 5% of standard-rated sales plus reverse-charge output.
- VAT Input equals recoverable input VAT on the return.
- The difference is explained: timing, credit notes, adjustments.
A reconciliation done before filing is the cheapest control available. Errors found afterwards need voluntary disclosure.
Month-end VAT checklist
- Every sales invoice for the month has a tax code and is posted.
- Every purchase invoice is posted with the right code, and blocked items are excluded from VAT Input.
- Reverse-charge purchases are posted with both output and input VAT.
- Credit and debit notes are matched to the original invoices.
- Import VAT from customs declarations is recorded.
- VAT Output and VAT Input are reconciled to the ledger totals by tax code.
- The net balance is carried to VAT Payable (FTA).
Posting errors we see most often
| Error | Effect |
|---|---|
| Whole VAT-inclusive amount posted to expense with no VAT Input | Recoverable VAT lost |
| VAT posted on a supplier invoice that has no TRN | Input VAT claimed without valid evidence |
| Zero-rated sales coded as standard-rated, or the reverse | Wrong boxes on the return |
| Reverse charge posted on one side only | Return and ledger out of balance |
| Credit note posted to expense instead of reversing VAT | Output VAT overstated |
Most of these are caught by a one-page reconciliation before filing. Where they are found afterwards, they need correcting through voluntary disclosure.
Controls that prevent errors
- A check that every VAT entry has an invoice number and date.
- A reconciliation of the VAT control account to the return each period.
- A review of unusual items, such as large credit notes or reverse charge entries.
- A lock on closed periods, so earlier figures cannot change silently.
Corrections after filing
If you find an error after filing, do not edit the closed period. Record the correction in the current period and, where the rules require it, use the voluntary disclosure procedure. See VAT penalties for the consequences of leaving errors uncorrected.
Typical entries
| Event | Debit | Credit |
|---|---|---|
| Sale with 5% VAT | Receivable | Sales and output VAT |
| Purchase with recoverable VAT | Expense and input VAT | Payable |
| Payment of net VAT to the FTA | VAT payable | Bank |
| Refund received | Bank | VAT receivable |
Keep input VAT and output VAT in separate accounts, and clear them to a single VAT payable or receivable account when you prepare the return.
Frequently asked questions
Debit the expense and debit VAT Input for the VAT amount, then credit accounts payable for the total. For a AED 1,000 purchase at 5%, debit expense 1,000, debit VAT Input 50, credit payables 1,050.
Debit receivables for the total, credit revenue for the net amount and credit VAT Output for the VAT. For AED 2,000 plus 5%, receivables 2,100, revenue 2,000 and VAT Output 100.
Debit the expense, debit VAT Input and credit VAT Output for the same amount, then credit the foreign supplier for the net invoice. The VAT lines offset where the cost is recoverable.
Debit VAT Output, credit VAT Input and credit VAT Payable (FTA) for the net amount. Payment then clears VAT Payable against the bank.
It is not posted to VAT Input. It becomes part of the cost of the item and is expensed or capitalised with it.
No VAT is posted, but the sale needs a zero-rated tax code so it appears in the correct box of the VAT return.