Difference Between VAT Inclusive and VAT Exclusive Prices (UAE Guide)
Understanding the difference between VAT inclusive and VAT exclusive prices is essential for consumers and businesses in the UAE. Since the UAE applies a standard 5% Value Added Tax (VAT), knowing whether VAT is included in a price helps you calculate the actual amount payable.
This guide explains VAT inclusive vs VAT exclusive pricing in simple terms and how to calculate each correctly.
What Is VAT in the UAE?
VAT (Value Added Tax) is a consumption tax applied to most goods and services in the UAE. The standard VAT rate is 5%, which is added at different stages of the supply chain and ultimately paid by the end consumer.
What Is a VAT Inclusive Price?
A VAT-inclusive price indicates that the tax is already added to the displayed amount, so the price shown is the total you need to pay.
Example:
If a product price is AED 105 (VAT inclusive):
Actual product price = AED 100
VAT (5%) = AED 5
Total payable = AED 105
VAT inclusive pricing is commonly used in retail stores, restaurants, and supermarkets to make pricing clearer for customers.
What Is a VAT Exclusive Price?
A VAT exclusive price means VAT is not included in the displayed amount. The tax will be added at checkout or on the invoice.
Example:
If a service costs AED 100 (VAT exclusive):
VAT (5%) = AED 5
Total payable = AED 105
VAT exclusive pricing is commonly used in business invoices, quotations, and professional services.
VAT Inclusive vs VAT Exclusive – Key Differences
| Feature | VAT Inclusive | VAT Exclusive |
|---|---|---|
| Price Display | Includes VAT | Excludes VAT |
| Amount Paid | Final total shown | VAT added later |
| Common Use | Retail & restaurants | Business invoices |
| Transparency | Clear for consumers | Clear for accounting |
Why Businesses Use VAT Exclusive Pricing
Businesses often display VAT exclusive prices because:
It simplifies accounting and tax reporting
Companies can claim input VAT credits
B2B transactions usually exclude VAT in quotations
It ensures transparency in invoices
Why Retail Stores Use VAT Inclusive Pricing
Retailers prefer VAT inclusive pricing because:
Customers see the final price immediately
It prevents confusion at checkout
It improves price transparency
It complies with consumer protection standards
How to Convert VAT Inclusive to VAT Exclusive Price
To find the price before VAT:
VAT Exclusive Price = VAT Inclusive Price ÷ 1.05
Example:
AED 105 ÷ 1.05 = AED 100
How to Add VAT to a VAT Exclusive Price
To calculate the total price including VAT:
Total Price = VAT Exclusive Price × 1.05
Example:
AED 100 × 1.05 = AED 105
Common Mistakes When Calculating VAT
Many people incorrectly subtract 5% from the total when removing VAT. The correct method is dividing by 1.05.
Other common mistakes include:
Confusing VAT inclusive and exclusive amounts
Forgetting to add VAT on invoices
Miscalculating VAT during bulk transactions
Understanding the difference helps prevent costly errors.
When Do You See VAT Inclusive vs Exclusive Pricing in UAE?
You will typically see:
VAT Inclusive Prices
supermarkets
restaurants
retail shops
online shopping
VAT Exclusive Prices
professional services
business quotations
invoices
wholesale transactions
FAQ – VAT Inclusive vs VAT Exclusive
What does VAT inclusive mean?
VAT inclusive means the price already includes the 5% VAT.
What does VAT exclusive mean?
VAT exclusive means VAT is not included and will be added to the final amount.
How do I remove VAT from a total amount?
Divide the VAT inclusive price by 1.05 to find the original amount.
Final Thoughts
Knowing the difference between VAT inclusive and VAT exclusive prices helps consumers avoid confusion and enables businesses to manage invoices and tax calculations correctly. With the UAE’s 5% VAT system, understanding how VAT is applied ensures accurate pricing and financial transparency.
🔗 Helpful Tool
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