🇦🇪UAE

خطأ توقيت ضريبة القيمة المضافة على الاحتفاظ (VAT Timing Mismatch on Retention)

Updated: Feb 20263 verified sources

Definition

FTA requires VAT at 5% on all construction services, including retention amounts, due at invoice or payment receipt (whichever is earlier). Search result [3] from EASMEA warns: 'a common mistake is to think that VAT on this retention amount is only due when the cash is finally released.' Correct treatment: contractor owes 5% VAT on 100% contract value upfront but receives only 95% payment. For AED 10M contract: VAT due = AED 500K; cash received = AED 9.5M. Contractor faces AED 500K VAT cost on AED 9.5M cash flow—creating effective 5.26% cost on received funds. Incorrect treatment (deferring VAT to retention release) triggers FTA audit penalties.

Key Findings

Financial Impact: Direct cash flow loss: AED 25,000–250,000 per project (5% VAT on 5% retained amount, for projects AED 5M–50M). Annual penalty exposure (FTA audit non-compliance): AED 5,000–50,000 per invoice × 12–50 invoices/year = AED 60,000–2.5M. Typical contractor impact: AED 150,000–500,000 annually in mishandled VAT timing.
Frequency: Per invoice (monthly or milestone-based during construction); affects 100% of VAT-registered contractors on projects >AED 375K.
Root Cause: Misunderstanding of FTA guidance; manual VAT calculation without integration to retention schedules; lack of automation linking invoice date, payment date, and retention timing.

Why This Matters

This pain point represents a significant opportunity for B2B solutions targeting Building Structure and Exterior Contractors.

Affected Stakeholders

Tax Compliance Officer, Accounts Payable, Finance Manager, FTA Audit liaison

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Financial Impact

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Current Workarounds

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Methodology & Sources

Data collected via OSINT from regulatory filings, industry audits, and verified case studies.

Evidence Sources:

Related Business Risks

تأخير الدفعات النهائية بسبب فترة الضمان (Retainage Cash Flow Drag)

AED 50,000–500,000 per project in working capital financing costs (12% annual cost of capital on retained 5% of contract value); typical contractor portfolio: 5–10 concurrent projects = AED 250K–5M annual cash flow drag.

عدم تتبع الفواتير والدفعات الجزئية المفقودة (Unbilled/Untracked Retainage & Partial Payment Loss)

Direct invoice loss: 2–5% of total retention amounts unbilled = AED 100K–500K per contractor per year (assuming AED 100M–500M annual contract value). VAT tracking errors: AED 20K–100K annually. Interest/penalty recovery shortfall: AED 10K–50K annually. Total annual loss: AED 130K–650K.

قرارات غير مستنيرة بسبب نقص البيانات الفورية (Lack of Real-Time Retention Visibility)

Excess borrowing cost: AED 50K–500K annually (10–15% interest on AED 500K–5M in over-borrowed amounts due to retention uncertainty). Missed refinancing: contractor could refinance at 8% but doesn't know retention release schedule; misses 2–3% savings = AED 100K–300K annually on AED 5M–15M portfolio. Delayed cash recovery: manual defect verification adds 30–90 days beyond contract; AED 50K–200K in lost interest/opportunity cost per project × 5–10 projects = AED 250K–2M annually.

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