VAT on Cars in UAE: Rates, Rules & Used Car VAT

By the First Choice Cars team, Souq Al Haraj, Sharjah · Reviewed against current FTA guidance, August 2026

We sell and export used cars for a living, so the questions in this guide are the ones we answer across the counter every day.

Since VAT was introduced in the UAE, car buyers have been asking the same questions: is the price I see the price I pay, why does my used-car invoice look different from my friend's, and what happens if I export the car? And if you searched for "car tax in Dubai" or "UAE car tax", this is that guide. The tax in question is VAT. This guide is based on the Federal Tax Authority's published guidance and the applicable UAE VAT legislation, including the Automotive Sector VAT Guide (VATGAM1), the Profit Margin Scheme Guide (VATGPM1), and the FTA's Basic Tax Information Bulletin for the Automotive Sector. The key sources are listed at the end so you can check every claim against the FTA guidance behind it.

On this page: The Short Version · What is VAT · Tax on Cars in Dubai · Personal Car Buyers · How VAT Works · Buying a Used Car · Trade-ins · Leased Cars · Imported Cars · The Profit Margin Scheme in Full · Transaction Summary · Warranty · Exports · FAQ · Sources

The Short Version

• Every price a dealer shows the public already includes the 5% VAT. That is a legal requirement, not a courtesy.
• On used cars, a dealer may charge VAT on its profit margin only, and a margin-scheme invoice legally shows no VAT amount.
• Buying from a private individual? The sale is outside the scope of VAT. Nothing to pay.
• Exporting? The sale can be zero-rated if the car leaves within 90 days and the right documents are held.
• Personal buyers cannot reclaim VAT. Businesses can only when the vehicle is not available for anyone's personal use.

The rest of this guide explains each of those in full, transaction by transaction.

What is VAT?

VAT is a general consumption tax applied to most supplies of goods and services. It was introduced in the UAE on 1 January 2018 under Federal Decree-Law No. 8 of 2017, at a standard rate of 5%. That rate applies to the automotive sector, covering the sale of both new and used cars.

One point worth settling immediately: VAT is a federal tax. It applies identically in Dubai, Sharjah, Abu Dhabi and every other emirate. There is no separate emirate-level car tax.

Is There Tax on Cars in Dubai?

Yes. The tax on cars in Dubai is VAT, and because VAT is federal, exactly the same rules apply whether you buy in Dubai, Sharjah or anywhere else in the UAE. What people search as "Dubai car tax" or "vehicle tax in Dubai" is, in law, the same federal VAT. Many people also ask about road tax: the UAE has no traditional annual road tax on private cars.

Here is what the FTA's rules actually say about buying a car:

Displayed prices must include VAT. This is not a courtesy. It is a legal requirement. For sales to the public, a dealer must display, advertise, publish or quote VAT-inclusive prices, so you know upfront the full amount payable. The FTA's own example: a car priced at AED 100,000 with AED 5,000 VAT must be advertised at AED 105,000, stated as VAT-inclusive. There are only two exceptions where a price may be shown excluding VAT: where the supply is for export, or where the customer is VAT-registered. Even then, the dealer must clearly state that the price excludes VAT.

The rate is 5% on new and used cars alike. What can differ between the two is not the rate but the basis on which the dealer calculates the VAT, which brings us to the Profit Margin Scheme.

The Profit Margin Scheme. For used cars, a VAT-registered dealer may account for VAT on the profit margin only: the difference between what the dealer paid for the car and what it sold for, rather than the full selling price. The scheme is optional. Its purpose is to prevent tax cascading. When a dealer buys a used car from a private individual, there is no VAT for the dealer to recover, yet VAT was already paid somewhere in that car's history. Charging 5% again on the full price would tax the same value twice. The scheme fixes that by taxing only the dealer's margin, and the margin itself is treated as VAT-inclusive, so the VAT works out to 5/105 of the margin, not 5% on top of it. Either way, the price displayed to you is VAT-inclusive.

A Profit Margin Scheme invoice looks different, and that is deliberate. The dealer must issue a tax invoice that clearly states VAT was charged by reference to the profit margin, containing all the usual invoice details except the VAT amount. The FTA's rules require the VAT amount to be left off a margin-scheme invoice. So if your used-car invoice states the margin scheme was applied and shows no VAT figure, that invoice is correct and fully compliant. On a standard-rated sale, by contrast, the invoice will show the VAT amount.

Invoices arrive within 14 days. A tax invoice must be issued within 14 days of the date of supply and delivered to you. Where the sale is to an unregistered customer, or the amount charged to a registered customer is AED 10,000 or less, the dealer may issue a simplified tax invoice instead.

Government fees on your invoice carry no VAT. Where a dealer collects an amount on your behalf for a designated government entity, such as a transport authority fee, that amount must be separately identified on the tax invoice, and no VAT is charged on it.

Personal buyers cannot reclaim VAT. If you buy a car for personal use, the VAT is simply part of your cost. Businesses should be careful with the common assumption that registration changes this: input tax on the purchase, rent or lease of a motor vehicle is blocked in full if the vehicle is available for the personal use of an employee, and where it is blocked, so is the input tax on associated costs such as insurance, maintenance and servicing. Recovery is available only where the vehicle is not available for personal use. An employee taking a vehicle home does not by itself block recovery if the reason is emergency availability or the nature of the job requires it. The deciding question is whether the vehicle is also available for personal purposes.

VAT for Personal Car Buyers

Three things to hold onto:

• The advertised price already includes VAT. Check that the invoice matches it.
• The tax on used cars is the same 5% as on new cars. What may differ is the calculation basis (full price on a standard-rated sale, dealer's margin under the Profit Margin Scheme) and, as a result, whether a VAT amount appears on your invoice.
• Keep every document. The original tax invoice in particular matters more than most buyers realise, for a reason explained in the used-car section below.

Why it matters: VAT sets the final number you pay, tells you what a compliant invoice looks like so a wrong one stands out, and protects your resale value, because the paperwork you keep today decides which VAT treatment is available to the dealer who buys your car next.

How VAT Works for Car Buyers in the UAE

VAT becomes due on the date of supply. For an outright sale, that is the earliest of four events: the date the car is transferred to you, the date you take possession of it, the date payment is received, or the date a tax invoice is issued. One practical consequence: pay a deposit and VAT falls due on that deposit amount at that point, with the tax on the balance falling due as further payments are made or invoices issued.

Outright Purchases vs. Hire Purchase Agreements

• Outright Purchases: Buy the car outright, whether with cash or a bank loan, and VAT applies as above: 5% on the full price for a standard-rated sale, or on the margin where the dealer applies the Profit Margin Scheme.
• Hire Purchase: Under a hire-purchase arrangement, two separate supplies take place for VAT purposes. First, the dealer sells the car to the finance company and accounts for VAT on the sale price. Second, the finance company supplies the car to you: it lets you use the car during the hire period, and ownership passes to you once all instalments are paid.

The finance company's invoices generally have two components: the hire instalments, which are subject to VAT, and the interest, which is exempt. One catch, and it matters: if the finance charge is included in the total amount payable in instalments, the entire amount becomes liable to VAT, taking the same treatment as the car itself. Hire-purchase schedules are often structured exactly that way, so check whether interest is separately identified before assuming any part of your instalment is VAT-free.

Essential Tips for Buying a Used Car in the UAE

Who you buy from changes how VAT on used cars works. Here is what to check when buying a second-hand vehicle in the UAE:

• From a Dealer: Always get the tax invoice. On a standard-rated sale it will show the VAT amount. Under the Profit Margin Scheme it will state that VAT was charged on the margin and show no VAT amount. Both are correct in their respective cases.
• From the First Owner: Ask for the original tax invoice from when the car was first bought. Here is why it matters: one of the conditions for a dealer to apply the Profit Margin Scheme is that the car was previously subject to UAE VAT, and the original tax invoice is the FTA's primary evidence of that. If the owner no longer has it, the FTA accepts alternatives: a copy obtained from the original dealer, or documents such as the motor insurance policy or the vehicle registration certificate, provided they establish that VAT was charged on the original purchase. And when a dealership buys your car, expect the reverse of this diligence. The dealer issues the purchase invoice itself and asks for your signature, because the FTA requires exactly that. Simple diligence applies on your side too: take a copy of the seller's registration card and Emirates ID to verify identity and ownership.
• Private Resales: When you buy from a private individual who is not registered for VAT and not required to register, the sale is outside the scope of VAT. No VAT applies. Note the precise wording: this is not a VAT "exemption", which is a different legal category reserved for specific supplies such as certain financial services. A private car sale simply falls outside the tax altogether. VAT enters the picture only when the seller is a registered business, such as a dealership.

Why the Paper Trail Pays at Resale?

A complete document trail (original tax invoice, registration copy) helps the next dealer establish whether the Profit Margin Scheme is available for your car. A dealer who cannot evidence that the car was previously subject to UAE VAT cannot use the scheme for it, which can affect what the car is worth to them.

VAT and Trade-ins

Trading in your old car against a new one feels like a single deal, and the question reaches our desk every week: why is VAT charged on the full price instead of the difference? Because for VAT it is two separate supplies:

1. The dealer's sale of the new car to you: The dealer must account for VAT on the full selling price of the new car, with no deduction for your trade-in value. This holds even for "trade-in over-allowances", where the dealer agrees to take your old car at above its market value: the over-allowance still cannot be netted off. So the number to focus on is the VAT-inclusive price of the replacement vehicle.
2. Your sale of the old car to the dealer: This is a supply in its own right. If you are a private individual not registered and not required to register for VAT, it is outside the scope and nothing further arises. If you are a VAT-registered business trading in a business vehicle, you are making a supply to the dealer and need to account for VAT on it under the normal rules.

VAT on Leased Cars

Leasing or renting a car is a taxable supply at 5%, whether daily, weekly, monthly or yearly. For longer leases billed periodically, VAT falls due on the earliest of the date a tax invoice is issued, the payment due date shown on the invoice, or the date payment is received, provided that does not exceed one year from the start of the lease.

The value of the supply is the entire amount charged for the lease, and the supplier must assess each component of its fees and account for VAT accordingly. The FTA's own example involves tolls. A rental company leased a car to a tourist for three months, Salik was deducted from the vehicle's account, and the contract allowed the company to recharge it. That Salik recharge is a cost of providing the leasing service, is subject to VAT, and forms part of the taxable value. Expect the same treatment for other running costs a lease contract passes on to you.

VAT on Imported Cars

Importing a car from outside the UAE attracts import VAT at 5%, imposed on the customs value, which includes the cost of the car, insurance, freight, and any customs fees paid on the import. The obligation sits with the "importer": the person named as importer on the customs clearance.

If you are VAT-registered, you may be able to defer the payment and account for the import VAT in your VAT return instead, provided four conditions are met: you are registered at the time of import; you have sufficient details for the FTA to verify the import and the VAT due; you have linked your customs registration number to your FTA account via the eServices portal; and you cooperate with the FTA's rules on the import. Where these are met, no VAT is collected at the border. The import VAT is prepopulated as output tax in your next return, you remain responsible for checking it is correct, and you may recover it as input tax under the normal recovery rules.

If you are not VAT-registered, for example an individual importing a personal car, you must pay the VAT before customs releases the vehicle, using the VAT301 Import Declaration Form on the FTA's e-Services portal. Clearing agents commonly handle this process. Where an agent pays the VAT for a non-registered importer, the agent recharges it and issues a statement that serves as your evidence of the VAT paid.

Cars under customs duty suspension (temporary admission, a customs warehouse, transit, or goods imported to be re-exported by the same person) are not treated as imported and attract no import VAT while the suspension holds, against a financial guarantee. Goods returned to the UAE after being sold and exported can also qualify for import VAT exemption as returned goods, though the exemption covers the import VAT only and does not extend to any VAT originally charged on the sale.

One trap the FTA specifically warns about: where a reseller imports a used car into the UAE, the Profit Margin Scheme generally cannot be applied on its resale where the import VAT is recoverable under the normal recovery rules. Whether the dealer actually claims that VAT makes no difference; recoverability alone rules the scheme out, and the resale is subject to VAT on the full value. The scheme may apply only where the reseller's import VAT was not recoverable because recovery was blocked under Article 53 of the Executive Regulation. The FTA flags this as an area where businesses have applied the scheme incorrectly.

The Profit Margin Scheme in Full

Because so much of used-car VAT turns on this scheme, and because it is the scheme we operate every day, here are the complete rules, drawn from Article 29 of the Executive Regulation as amended and the FTA's dedicated Profit Margin Scheme Guide (VATGPM1, January 2026). A dealer may account for VAT on the margin only where:

1. The car was purchased from a non-taxable person, or from another taxable person who applied the Profit Margin Scheme on the sale. Alternatively, the dealer is selling a car for which its own input tax recovery was blocked under Article 53 of the Executive Regulation (a former company car available for private use, for instance, or an imported car whose import VAT was blocked).
2. The car was subject to VAT before the supply in question, and the dealer retains documentary evidence establishing that the vehicle was previously subject to UAE VAT: typically the original tax invoice, though documents such as the insurance policy or registration certificate can serve, provided they establish that VAT was charged on the original purchase.
3. No tax invoice or other document was issued for that sale showing an amount of VAT, Once a VAT amount has been stated on the paperwork for a supply, the margin scheme cannot be applied to it.
4. The tax invoice clearly states that VAT was charged by reference to the profit margin and contains all other required particulars except the VAT amount.
5. The prescribed records are kept, a stock book or similar record showing details of each car bought and sold under the scheme, and purchase invoices. Where the car is bought from a non-taxable person, the dealer must issue the purchase invoice itself, stating the dealer's name, address and TRN; the seller's name and address; the date of purchase; the details of the car; the consideration payable; and the signature of the seller or authorised signatory.
6. The dealer notifies the FTA that it has opted to use the scheme. This is done in the VAT return, where the EmaraTax VAT201 form asks with a yes/no checkbox whether the Profit Margin Scheme was applied in the period.

How the Number is Worked Out?

Under the amended Article 29, the margin is inclusive of VAT. The VAT due is 5/105 of the margin (VATGPM1 simplifies this to dividing the margin by 21), not 5% on top of it. A car bought for AED 80,000 and sold for AED 101,000 gives a margin of AED 21,000, of which the VAT is AED 1,000.

Two further mechanics matter. The purchase price includes any costs and fees incurred to purchase the car: recovery, transport or auction charges paid to acquire it all count, which reduces the taxable margin. And where a car is sold at a loss or at break-even, no VAT is due on that sale under the scheme, though the loss cannot be set off against the margin on another car.

And two situations where the scheme cannot be used, both called out by the FTA as common errors: stock acquired before VAT was implemented on 1 January 2018 (or otherwise never previously subject to UAE VAT), and, as above, used cars the reseller imported where the import VAT was recoverable.

For buyers, the takeaway is simple: a margin-scheme invoice with no VAT amount on it is what compliance looks like, and the documents you keep today decide whether the scheme is available when your car changes hands next.

VAT Implications for Car Transactions in the UAE

Pulling the threads together, transaction by transaction:

1. Standard Rate (5%): New cars from a dealership: 5% on the total price. Used cars from a dealership: 5% on the total price, unless the dealer applies the Profit Margin Scheme.
2. Profit Margin Scheme: Optional for used cars meeting the conditions above; VAT is accounted for on the dealer's margin, and the invoice shows no VAT amount.
3. Trade-ins, Two Supplies: VAT on the full price of the new car with no netting of the trade-in value; your own leg is outside the scope if you are a private individual, taxable if you are a registered business disposing of a business asset.
4. Imports: 5% on the customs value including cost, insurance, freight and customs fees, with the margin-scheme restriction where the reseller's import VAT on a used car is recoverable.
5. Private Sales: A sale by a seller who is not registered and not required to register for VAT is outside the scope of VAT.
6. Zero-rated Commercial Transport: Not every vehicle carries 5%: buses designed or adapted for public transportation of ten or more passengers, and actually used for public transportation, are zero-rated as qualified means of transport. Both limbs matter: the design or adaptation, and the actual use.
7. Company Vehicles: A registered business may recover VAT on the purchase, rent or lease of motor vehicles used exclusively for business purposes. If the vehicle is available for an employee's personal use, the input tax is blocked in full, along with insurance, maintenance and servicing.
8. Documentation: A tax invoice within 14 days of the date of supply; a simplified invoice is permitted for unregistered customers or amounts of AED 10,000 or less to registered customers; government-entity disbursements shown separately with no VAT. Where a discount is given, VAT applies on the discounted value, and the invoice must clearly state the discount for that to hold.

Warranty and VAT

When a warranty is included in the price of the car, VAT was already accounted for on that price, warranty included, at the time of sale. Repairs carried out under the warranty attract no further VAT, as long as nothing extra is paid. The same applies to used cars sold under the Profit Margin Scheme where the warranty cost is in the price.

An extended warranty purchased separately is a taxable supply of services at 5% when you buy it. Repairs performed under it during the extended period then attract no further VAT, for the same reason: the tax was accounted for on the warranty itself.

VAT Implications for Car Exports

Exporting a car from the UAE can qualify for zero-rating, meaning VAT charged at 0%, under Article 30 of the Executive Regulation as amended. No VAT is charged on the sale if the conditions are met, though the destination country's own import VAT and duties still apply on arrival.

Two requirements sit at the core. The first is the 90-day rule: the car must be physically exported outside the UAE, or placed into a customs suspension regime under the GCC Common Customs Law, within 90 days of the date of supply. The second is the evidence rule: one of three document combinations, defined by the amended Article 30, must be held:

1. A customs declaration plus commercial evidence proving the export;
2. A shipping certificate plus official evidence proving the export; or
3. A customs declaration proving the customs suspension arrangement.

Who must hold the evidence depends on who arranges the transport.

Direct Export: The dealer arranges the transport of the sold car out of the UAE, or appoints an agent to do so. Zero-rating applies if the car leaves (or enters suspension) within the 90 days and the dealer retains any one of the three combinations above.

Indirect Export: The overseas customer collects the car from the dealer and arranges the export, or appoints an agent to. Zero-rating applies if the car leaves within 90 days under an arrangement agreed between dealer and customer at or before the date of supply; the customer, or its agent, obtains one of the same three evidence combinations and provides the dealer with a copy; and the car is not used or altered between supply and export, except as necessary to prepare it for export.

What the Documents Mean:

These are defined terms under the amended Article 30 (Cabinet Decision No. 100 of 2024, effective 15 November 2024). Official evidence means an export or clearance certificate issued by UAE customs confirming the car's departure, or a document or clearance certificate certified by the authorities in the destination country confirming the car's entry there. Commercial evidence means the transport document issued by the sea, air or land carrier or its agent: an air waybill or air manifest, a sea waybill or sea manifest, or a land waybill or manifest. A shipping certificate is a certificate issued by the transport company or agent that stands in for commercial evidence where it is not available.

Whichever combination is used, the evidence must identify six things: the supplier; the consignor; the goods (the car); the value; the export destination; and the mode of transport and route of the export movement. The FTA may refuse documents that do not sufficiently prove the car left the UAE. Exports made before 15 November 2024 remain subject to the earlier rule requiring both official and commercial evidence.

If the conditions are not met, because the car is not exported or placed under customs suspension within 90 days or the evidence is not in place, the sale does not qualify for zero-rating and the dealer must account for VAT at 5% on the supply.

Administrative Exceptions:

The FTA's Administrative Exceptions Guide (VATGEX1, December 2025 edition) provides two routes for hard cases: approval to use alternative evidence where the prescribed documents cannot be obtained, and an extension of the 90-day export period where export within that window is impracticable. Neither is automatic and neither is a general rule. Only a registrant can apply, through EmaraTax; the FTA decides each request on the applicant's own facts; and an approved exception covers only that applicant and only the specific matter in the decision, generally for three years and renewable by a fresh application. Another exporter in the same position must apply for its own. Until an exception is approved, the standard conditions stand, and a sale that fails them carries 5% VAT. The FTA's own automotive example is close to daily life at a UAE dealership. A tourist buys a car and self-drives it to Oman. No carrier is involved, so no transport document exists. The dealer's route is to request an administrative exception allowing an alternative form of evidence so the zero-rating can apply.

Two Sales, One Export:

A pattern we see often: an overseas customer orders a car from dealer X in the UAE; X buys it from dealer Y, also in the UAE, without taking delivery; Y ships it straight to the customer abroad. Only the final supply can be zero-rated. The sale from Y to X is a local supply subject to 5% VAT, even though the car went directly overseas, and the export documents should clearly record, for example in the remarks section of the customs declaration, that Y exported the car as agent on behalf of X.

Conclusion

VAT on car transactions in the UAE is manageable once you match the rule to the transaction: 5% on the full price for standard-rated sales, margin-based VAT with a distinctive invoice under the Profit Margin Scheme, outside the scope for genuine private sales, zero-rating for compliant exports and qualifying public-transport vehicles. The rate has stood at 5% since 1 January 2018, and there is no separate tax on luxury cars in Dubai or anywhere in the UAE. The same 5% applies whether you are buying a runabout or a supercar, which keeps the UAE one of the most affordable places anywhere to buy and run a car.

If you are unsure how VAT applies to your purchase, import or export, speak to a tax advisor or an FTA-registered tax agent. And if you want the transaction handled end to end, we at First Choice Cars have been buying, selling and exporting cars in the UAE since 2018. We prepare the documentation on our side for direct exports, and for indirect exports we will tell you exactly what evidence you need to obtain and return to us so the zero-rating holds.

Frequently Asked Questions

Is there VAT on used cars in the UAE?

Yes. The same 5% as on new cars, when the seller is a VAT-registered business. A dealer may apply the Profit Margin Scheme so VAT is accounted for on the margin only, and a sale by a private individual who is not registered and not required to register is outside the scope of VAT entirely.

How is VAT calculated under the Profit Margin Scheme?

The margin (selling price minus purchase price, with purchase price including acquisition costs and fees) is treated as inclusive of VAT. The VAT is 5/105 of the margin, which is the margin divided by 21. On a margin of AED 21,000, the VAT is AED 1,000.

Can I claim back the VAT on a car I buy?

Not as a personal buyer. A VAT-registered business can recover it only where the vehicle is not available for anyone's personal use. Otherwise the input tax is blocked in full, along with the VAT on insurance, maintenance and servicing.

Do I pay VAT when buying from a private seller?

No. Provided the seller is not registered for VAT and not required to register, the sale is outside the scope of VAT. No VAT applies and none should appear in the price.

Is exporting a car from the UAE free of VAT?

The sale can be zero-rated if the car leaves the UAE, or enters customs suspension, within 90 days of the date of supply and one of the prescribed evidence combinations is held. If either fails, 5% VAT is due on the sale, and the destination country's own import taxes apply on arrival either way.

Is there road tax or a luxury car tax in Dubai?

Neither. The UAE has no traditional annual road tax on private cars, and there is no separate luxury car tax. The same federal 5% VAT applies to every car, whatever its price.

Sources:

This guide is based on the following Federal Tax Authority publications and UAE VAT legislation:

• Federal Tax Authority, Automotive Sector VAT Guide | VATGAM1 (June 2021): tax.gov.ae
• Federal Tax Authority, Profit Margin Scheme VAT Guide | VATGPM1 (January 2026): tax.gov.ae
• Federal Tax Authority, Basic Tax Information Bulletin, Automotive Sector, tax.gov.ae
• Federal Tax Authority, Administrative Exceptions VAT Guide | VATGEX1 (December 2025): tax.gov.ae
• Federal Tax Authority, Public Clarification VATP040 on the amendments to the Executive Regulation (March 2025): tax.gov.ae
• Federal Decree-Law No. 8 of 2017 on Value Added Tax, as amended, and Cabinet Decision No. 52 of 2017 on the Executive Regulation, as amended, most recently by Cabinet Decision No. 100 of 2024 (effective 15 November 2024) and Cabinet Decision No. 100 of 2025 (effective 29 September 2025)

FTA guides provide interpretive guidance and are not legally binding statements; the Decree-Law and Executive Regulation are the binding sources.

Disclaimer: This article is general information, not tax or legal advice. It reflects the FTA guidance listed above as at the date of publication. VAT legislation and FTA guidance are amended from time to time. Confirm the current position at tax.gov.ae or with an FTA-registered tax agent before acting. While First Choice Cars makes every effort to ensure accuracy, we accept no responsibility for errors, omissions or subsequent changes. Contact our team directly to confirm the latest details before making any decisions.