Retail and wholesale traders in the UAE charge 5% VAT on almost every sale, recover the VAT on what they buy, and remit the difference to the FTA. The decisions that cost traders money are not the rate — they are the registration threshold, which goods can go through the profit margin scheme, and two 2026 changes: e-invoicing obligations and mandatory supplier checks on input tax claims.
This page sets out the 2026 position for retail and wholesale trade, including the thresholds, the margin scheme and what is changing this year.
Registration thresholds
Registration obligations sit in Federal Decree-Law No. 8 of 2017 (VAT), as amended by Federal Decree-Law No. 8 of 2024 (FTA legislation, tax.gov.ae):
- Mandatory registration when taxable supplies and imports exceed AED 375,000 over 12 months.
- Voluntary registration from AED 187,500.
- A late registration attracts a penalty of AED 10,000 under the FTA's administrative penalties framework, plus retrospectively due output tax.
Multi-branch retailers register as one person; wholesale importers should watch the 12-month rolling test closely, because a single container can cross the threshold.
The profit margin scheme: the retail opportunity most traders miss
The profit margin scheme lets a trader charge VAT only on the margin — the difference between the purchase price and the resale price — instead of 5% on the full sale price. It applies under Article 43 of the VAT Decree-Law (as amended by Federal Decree-Law No. 8 of 2024) and Article 29 of the Executive Regulation, and is available for:
- Second-hand goods (including vehicles taken in part exchange)
- Antiques and collectibles
- Goods that were previously supplied for the same purpose by a taxable person
Conditions include: the original purchase must have been from a non-taxable person or without recoverable input tax, the margin must be identifiable per item, and a specific tax invoice is not issued for margin-scheme sales (the buyer gets a compliant receipt showing the price as VAT-inclusive). For a used-car or electronics trade-in business, the scheme routinely reduces the effective VAT burden on each unit.
What changes in 2026
Two changes land on UAE traders this year:
- E-invoicing: the UAE's e-invoicing framework is being phased in under Ministerial Decision No. 66 of 2026, with obligations hitting the first waves of taxpayers during 2026. Retailers and wholesalers integrated into the Peppol-based network will need to issue structured e-invoices through accredited service providers — manual PDF invoices stop qualifying for affected taxpayers. Confirm your wave on the FTA's e-invoicing page and start ERP readiness now.
- Supplier checks on input tax: from 1 October 2026, FTA Decision No. 13 of 2026 requires traders to verify suppliers before claiming input tax — checking that the supplier is registered and the supply is genuine. Wholesale businesses buying from hundreds of suppliers need a documented verification step in procurement, or they risk input tax disallowance.
The trader's VAT position at a glance
| Item | Treatment in 2026 | Source |
|---|---|---|
| Standard-rated sales (most goods) | 5% output VAT; input tax recoverable | VAT Decree-Law, as amended |
| Registration threshold | AED 375,000 mandatory / AED 187,500 voluntary | FTA VAT guidance |
| Second-hand, trade-ins, antiques | Profit margin scheme — VAT on margin only | Art. 43 Decree-Law; Art. 29 Exec. Reg. |
| Zero-rated exports of goods | 0% with documentary proof of export | VAT Decree-Law |
| Input tax on purchases | Recoverable if the supplier check passes | FTA Decision No. 13 of 2026 (from 1 Oct 2026) |
| Invoicing | E-invoicing obligations phased in during 2026 | Ministerial Decision No. 66 of 2026 |
Common errors the FTA finds in retail VAT
- Claiming input tax on purchases where the supplier was not registered — the 2026 supplier-check rules make this the top disallowance risk.
- Applying 5% where a margin scheme should apply (overpaying), or margin scheme where goods do not qualify (under-declaring).
- Missing the 12-month rolling registration test during seasonal spikes.
- Not separating damaged goods, samples and staff use — all create deemed supplies.
Want the margin scheme reviewed against your actual purchases? Finanshels is an FTA Registered Tax Agency (no affiliation with the FTA). Book a VAT health check.
FAQ
Is VAT on retail sales 5%?
Yes — the standard rate is 5%, with limited zero-rated categories such as exports. The profit margin scheme can reduce the taxable base for second-hand goods.
When must a retailer register for VAT?
When taxable supplies and imports exceed AED 375,000 in any 12-month period. Voluntary registration is possible from AED 187,500.
How does VAT work on trade-ins?
Under the profit margin scheme, VAT is charged on the difference between what you paid for the unit and the resale price — not the full invoice value — where the purchase conditions in Article 43 of the VAT Decree-Law are met.
Do wholesale distributors need e-invoicing in 2026?
E-invoicing obligations are being phased in during 2026 under Ministerial Decision No. 66 of 2026. Wholesalers should confirm their assigned wave and prepare their ERP and service-provider integration in advance.
Can I recover input tax from any supplier?
From 1 October 2026, FTA Decision No. 13 of 2026 expects documented verification that the supplier is registered and the supply is genuine before input tax is claimed.
Last reviewed 30 September 2026 by Gautam Sanoj.
