VAT on restaurant sales in the UAE

VAT on restaurant sales in the UAE is simple in principle and easy to get wrong in practice. The standard rate is 5 per cent, it applies to food and drink sold in restaurants, and the price a guest sees on the menu must include it. Most owners know that much. What causes trouble is the detail: working out margins on prices that already contain tax, keeping records that the tax authority will accept, handling discounts and service charges, and knowing which invoices to issue.

Getting it right matters for two reasons. The first is compliance: a registered business must charge, record and pay VAT correctly, file returns on time, and keep records. The second is margin. VAT collected from guests is not the venue's money, so a menu priced without thinking about the tax inside it earns less than the owner expects.

This guide explains how VAT works on restaurant sales in the UAE, how it sits inside a menu price and on a bill, what it means for margin and menu pricing, how discounts and service charges affect it, and what bookkeeping a venue needs. It is a practical guide, not tax advice, and every point should be checked against the current guidance from the authority.

VAT in the UAE is administered by the Federal Tax Authority, which publishes the law, guides and updates. Rules and procedures can change, and each business's position depends on its own circumstances. Check the current guidance with the authority, and take advice from a registered tax agent or accountant for anything specific to your business.

This guide describes the general position for a restaurant selling food and drink to guests in the UAE.

VAT was introduced in the UAE on 1 January 2018. The standard rate is 5 per cent, and it applies to most goods and services, including food and drink served in restaurants and cafés. A registered business charges VAT on its sales, known as output tax, and can usually recover the VAT it pays on business purchases, known as input tax. The difference is paid to the authority with each return.

For a restaurant, output tax on sales is usually larger than input tax on purchases, so the venue pays the difference.

A business must register for VAT when the value of its taxable supplies and imports over the previous twelve months exceeds the mandatory registration threshold, or is expected to exceed it in the next thirty days. The mandatory threshold is AED 375,000. Businesses below it but above a lower voluntary threshold of AED 187,500 may choose to register.

Most restaurants pass the mandatory threshold quickly. A new venue should plan registration before it opens, so it can charge VAT from the right date.

In the UAE, prices shown to consumers must include VAT. That means the price on the menu is the price the guest pays, with the tax already inside it. This is tax inclusive pricing: the menu does not show a price plus VAT, but a single price that contains it.

Many venues add a short line to the menu stating that prices include VAT. Whatever the wording, the number the guest sees must be the full price.

Because the menu price includes VAT, the venue's own share of each price is smaller than the price itself. At a rate of 5 per cent, the VAT inside a tax inclusive price is 5/105 of the price. On a dish priced at AED 105, the VAT is AED 5, and the venue's net sale is AED 100.

A quick way to find the net price is to divide the menu price by 1.05. A dish at AED 63 has a net price of AED 60 and VAT of AED 3.

Margins should always be worked out on the net price, not the menu price. A dish priced at AED 105 with a food cost of AED 30 has a food cost percentage of 30 per cent of the net price of AED 100, not 28.6 per cent of the menu price. The difference looks small on one dish but matters across a menu.

The same applies to the venue's overall restaurant profit margin. Sales in the profit and loss should be shown net of VAT, so that costs and profit are measured against what the venue actually earned. Our guide to restaurant profit margin, honestly calculated covers the wider sum.

Menu pricing in the UAE starts from the net price the venue needs and adds VAT to reach the menu price. If a dish needs a net price of AED 80 to hit its target margin, the menu price is AED 84. Many venues then round to a price that looks right on the menu, such as AED 85, and check that the margin still works.

When costs rise and prices must change, work out the new net price first, then the menu price. Our guide to menu pricing covers six methods for setting the net price.

On the bill, the guest sees the total they pay, which includes VAT. A registered business must issue a tax invoice for its sales, showing the details required by the authority. For many restaurant sales to individual guests, a simplified tax invoice is allowed, with fewer details than a full tax invoice.

A full tax invoice is usually needed when a VAT-registered business guest asks for one, for example a company paying for a business dinner that wants to recover its own input tax. Check the current rules on which invoice is required and what it must show.

As a general guide, a simplified tax invoice can usually be issued when the guest is not registered for VAT, or when the guest is registered and the value of the supply is below a set amount. A full tax invoice carries more details, such as the guest's tax registration number. The rules on what each must contain are set out by the authority.

Make sure the venue's systems can produce the invoices required, and that the team knows how to issue a full tax invoice when a business guest asks.

Discounts reduce the amount on which VAT is charged. If a dish priced at AED 105 is discounted by 20 per cent to AED 84, the VAT inside the new price is AED 4, not AED 5. The venue's net sale falls to AED 80. That is why discounts cost the venue less than their headline value suggests in tax, but still cost the full amount in margin.

Record discounts properly, so that the sales and the VAT in the records match what guests actually paid.

Free items, comps and staff meals can raise VAT questions. Giving something away for nothing may, in some circumstances, be treated as a supply on which VAT is due, depending on its value and how the business recovered the input tax. The rules are specific.

Ask your tax adviser how comps, staff meals and promotional giveaways should be treated in your venue, and record them clearly so the position can be explained.

Service charges and tips can be treated differently for VAT. As a general principle, a charge that the guest must pay as part of the bill is usually part of the price of the supply and subject to VAT. A tip that the guest gives voluntarily, and that goes to the staff, is often treated differently.

Because the details matter, check the current guidance and take advice before setting up service charges or tip arrangements, and make sure the bill shows them correctly.

Some outlets, particularly in hotels, apply other charges set by the authorities in addition to VAT, such as municipality fees or tourism charges. Whether these apply depends on the type of licence and location. Check which charges apply to your venue, how they appear on the bill, and how VAT interacts with them.

Guests should be able to see clearly what they are paying and why.

When a guest pays in advance, for a large booking, an event or a festive set menu, VAT may become due when the payment is received rather than when the meal takes place. The rules on the date of supply decide when the tax point falls. That affects which return the VAT belongs in.

Record advance payments separately, with the date received, and check with your adviser how they should be treated, especially if the event falls in a different tax period.

Gift vouchers raise their own questions: whether VAT is due when the voucher is sold or when it is used, and how unused vouchers are treated. The answer can depend on the type of voucher and what it can be spent on.

Before selling vouchers in volume, for example at the end of the year, ask your adviser how they should be recorded, and make sure the system tracks vouchers sold and redeemed.

Food sold for delivery or takeaway is generally subject to VAT in the same way as food served at the table, and the price shown to the guest must include it. If sales go through delivery platforms, the venue receives statements showing orders, commissions and payments. The platform's commission is a purchase on which the venue may be charged VAT, which can usually be recovered.

Reconcile each platform's statement with the venue's own records every month, so sales and VAT are recorded correctly. Our guide to delivery in Dubai covers the channels and their margins.

The team does not need to understand VAT law, but they do need a few practical points: menu prices include VAT; a business guest may ask for a full tax invoice and how to issue one; discounts must be applied through the system, not by hand; and refunds and voids must be recorded properly.

A server who knows how to issue a full tax invoice saves the guest a phone call and the manager a correction the next day.

Once a month, before the figures go to the accountant, check them. Do the sales net of VAT and the VAT on sales add up to the gross sales collected? Do discounts, voids and refunds match the records? Are all supplier tax invoices for the month filed? Are advance payments recorded in the right period?

A short monthly check catches most problems while they are easy to fix, and it makes the quarterly return far quicker.

A registered venue can usually recover the VAT it pays on business purchases: food and drink stock, equipment, fit-out, rent where VAT is charged, utilities and services. To recover it, the venue needs valid tax invoices from its suppliers and must keep them.

Some purchases may not be recoverable, such as certain entertainment expenses. Check the rules and keep the invoices organised, because recoverable input tax directly reduces what the venue pays.

Registered businesses file VAT returns for each tax period, which for many businesses is quarterly, though the authority can set a different period. Returns are usually due within a set number of days after the period ends, and payment is due by the same date. Late filing and late payment can bring penalties.

Put the return dates in the diary, and prepare the figures before the deadline rather than on the last day.

Good bookkeeping makes VAT straightforward. For each day, the venue needs a record of sales, VAT on sales, discounts, payments by method, and any refunds or voids. For purchases, it needs each supplier's tax invoice, with the VAT shown. These records feed the VAT return and the accounts.

Reconcile the daily sales record with the payments collected, so the figures in the return match the money that came in.

Registered businesses must keep records that support their VAT returns, including tax invoices issued and received, records of sales and purchases, and accounting records, for the period the law requires, which is several years. Records can usually be kept electronically, as long as they can be produced when the authority asks.

Keep them organised by period. A box of crumpled receipts is not a record.

The point of sale is where VAT on restaurant sales is first recorded. It should record each sale with its VAT, handle discounts and voids correctly, and produce daily reports that show sales net of VAT, the VAT itself and the payments collected. These reports are the starting point for bookkeeping and the return.

Check that the system's reports match what your accountant needs before relying on them.

If prices change, update every menu, the point of sale and any online menus together, so the price a guest sees matches the price they are charged. A mismatch between the menu and the bill is a problem with guests and, potentially, with the rules on displayed prices.

Our guide to updating the menu in one place, not five covers how to keep every version in step.

Electronic invoicing is spreading across the region. In Saudi Arabia, businesses already follow e-invoicing rules set by the tax authority there. The UAE has announced its own plans for electronic invoicing, to be introduced in phases.

Follow the announcements from the UAE authorities, and ask your system suppliers how they will support the requirements when they apply.

Businesses under common control may, in some circumstances, register as a tax group, filing one return for several entities. That can simplify administration for a group of venues, but it also has consequences, such as shared liability. Take advice before deciding.

Whether grouped or not, keep each venue's sales and VAT clearly recorded, so the group can see each venue's results net of tax.

Here is an illustrative month for a venue. The figures are examples.

The venue's food cost percentage and profit margin are calculated on the net sales of AED 300,000, not the AED 315,000 on the till.

In servearound, payment analytics shows what made up the total: gross collected, discounts, the amount net of discount and the tax within gross, along with how each check was paid and revenue by hour. Each menu carries its own prices, and a selection of prices can be moved together by a percentage or an amount, so a change reaches every dish on that menu at once.

Each dish can carry its cost, so the menu report shows gross margin once costs are set. servearound is not an accounting system and does not file VAT returns; your accountant or tax agent prepares those from your records. See Analytics and Menus.

The standard rate of 5 per cent applies to food and drink served in restaurants. Check the authority for any change.

Yes. Prices shown to consumers must include VAT.

Multiply the price by 5/105, or divide the price by 1.05 to find the net price.

No. Work them out on the net price, after VAT has been taken out.

When taxable supplies and imports pass the mandatory threshold. Plan registration before opening.

Yes. VAT is charged on the discounted price the guest actually pays.

It depends on whether they are voluntary and who receives them. Check the guidance and take advice.

Tax invoices issued and received, records of sales and purchases, and accounting records, for the period the law requires.

Usually the venue's accountant or a registered tax agent, from the daily sales records and supplier invoices the venue keeps.

VAT on restaurant sales in the UAE is charged at 5 per cent on food and drink, and prices shown to guests must include it. Because of tax inclusive pricing, the venue's net share of each price is the price divided by 1.05, and margins, menu pricing and the restaurant profit margin should all be worked out on that net figure.

Register in time, issue the right invoices, record discounts, comps and service charges properly, recover input tax with valid supplier invoices, and file returns on time. Keep the bookkeeping daily and organised, keep every menu and the till in step, and check every point against the current guidance from the Federal Tax Authority.