What Every UAE Entrepreneur Should Know About VAT and Tally

Starting a business in the UAE is exciting because the country really feels like it’s specially set up for entrepreneurs. First, the government makes it surprisingly smooth by declaring free zones where foreigners can own 100% of their company, send all profits back home without restrictions, and enjoy zero personal income tax. That’s a huge deal compared to many other countries. Even the new corporate tax (9% above AED 375,000 profit) is still much lower than global averages.

Another big reason is location. The UAE is literally at the crossroads of Asia, Africa, and Europe. With Dubai International Airport and Jebel Ali Port, you can connect with the world faster than almost anywhere else. That’s the reason so many multinational companies are relocating their regional HQs there.

Besides, the UAE is currently aiming to diversify beyond oil into tech, renewable energy, healthcare, and logistics. As per reports, Abu Dhabi’s financial hub experienced a 42% increase in active companies in just one year (2024 to 2025), showing how fast the ecosystem is expanding.

Of course, there are costs like licenses, visas, and compliance, but when you balance your workflow with one of the best systems like Tally Software, you’ll realize that the UAE is one of those rare places where business opportunity meets lifestyle.

VAT in the UAE: The 2025 Update

The UAE introduced VAT at a standard rate of 5% in January 2018. Though some supplies are zero-rated or exempt, you must know the difference, or you’ll mess up.

Now moving into 2025, there are a few things that stand out:

• If your business makes more than AED 375,000 in taxable supplies per year, you must register for VAT. Even if you’re below that, voluntary registration is there once you pass AED 187,500.

• The FTA requires companies to maintain detailed invoices, credit notes, and VAT returns for up to 5 years.

• If you import or export (which a lot of UAE businesses do), the VAT treatment can change depending on free zones, designated zones, or outside the GCC.

• Day by day, FTA audits are becoming stricter, making random checks, surprise audits, and penalty notices a reality. Non-compliance can cost you thousands of dirhams, not to mention reputational damage.

• In 2024, the UAE amended VAT Executive Regulations under Cabinet Decision No. 100 of 2024 (effective November 15, 2024). It changed how composite supplies are treated, removed some exceptions for not issuing tax invoices, and altered rules on zero-rating and administrative reliefs.

• Entrepreneurs need to be ready for the e-invoicing rollout in July 2026. So watch your invoices, formats, and internal processes so you’re not caught flat-footed.

So, VAT is no longer that “5% side note.” It’s part of how you run your operations. And the entrepreneurs who understand that are the ones who won’t be caught off guard.

How Tally Software Handles VAT

Now, let’s talk about Tally Customization and VAT. 

• Tally is “VAT ready” in its latest versions. It supports UAE-specific invoice formats, handles domestic, intra-GCC, zero-rated, and exempt supplies, and helps you generate VAT return forms like Form 201.

• You can use Tally Single User for small setups, or Multi User when you have teams working across branches. Tally Prime supports both.

• It can generate tax invoices in both Arabic and English, which is critical because the UAE mandates bilingual tax invoices.

• Over time, you may opt for Tally Cloud access so you or your accountant can examine VAT records remotely.

• If you use multiple currencies (import, export), Tally will manage VAT in the base currency while showing conversions or split details.

• Tally in UAE also supports customization. This means if your business has unique internal workflows, you can customize the modules the way you want

Basically, if Tally is properly configured, much of the VAT pain, including invoice consistency, return generation, and compliance checks, will be reduced automatically or semi-automatically.

What You Should Watch Out For

Do you know, even a robust software like Tally in Dubai can’t help you when your enemy has a wrong setup?

Correct master setup: Your company details, TRN, tax period, and tax rate settings must be correct. Otherwise, if your master is wrong, you may face legal consequences.

Invoice classification: If you’re already running a business, then you must know thatnot all sales are standard-rated. Some of them are zero-rated, exempt, or part of designated zones. In Tally, you need to classify each transaction correctly.

Advance payments: Always record advance receipts properly, and reverse or adjust tax liability when you ultimately invoice.

Record retention: As mentioned above, the UAE requires that business documents be kept for at least five years. Tally Prime houses your books electronically, but your own backup policies must be strong.

Error corrections in returns: Under the 2025 year-end rules, you have methods to fix omissions or mistakes, but within timeframes.

Integration with other modules: Yourinventory, purchases, and sales modules must feed into VAT logic to stay compliant.

Customization & reports: Create reports that help you see exceptions, mismatched tax, invoices without TRN, or sales across emirates.

Renewals and updates:Tally renewal is important. You want your software updated with the latest VAT changes. Tally periodically issues patches for tax law amendments.

If one of your branches follows badly configured VAT rules, your whole business’s compliance could fall apart.

Most importantly, as a beginner, it’s nearly impossible to manage these alone. That’s why you’ll need a reliable Tally partner in the UAE. At Penieltech, we help you to handle everything mentioned above by providing in-depth training.