Dear Members,
My query is on the treatment of retention payments for calculation of VAT under the laws of UAE. The facts of the case are as follows:
1. Client and Contractor enter into a construction contract for AED 1,000,000/-
2. Break-down of the contract value
Activity 1 : 200,000
Activity 2 : 500,000
Activity 3 : 300,000
3. Payment terms: Advance 10% (recoverable from progress bills) and Progress works 80% net and 10% retention (to be deducted against each progress bills). i.e. at every stage of progress invoicing client will deduct 10% retention. The retention amount is payable upon completion of the project and obtaining Taking Over Certificate.
4. The client carries out invoicing as follows:
a) Advance invoicing: AED 100,000
b) 1st Progress invoicing: Gross AED 200,000 less 10% advance (i.e. 20,000) and 10% retention (i.e. 20,000). Therefore net payment to be received is AED
160,000
c) 2nd Progress invoicing: Gross AED 500,000 less 10% advance (i.e. 50,000) and 10% retention (i.e. 50,000). Therefore net payment to be received is AED
400,000
d) 3rd progress invoicing: Gross AED 300,000 less 10% advance (i.e. 30,000) and 10% retention (i.e. 30,000). Therefore net payment to be received is AED
240,000
e) Retention invoicing: AED 100,000 upon completion of the project
5. VAT treatment ???
a) Advance invoicing: 5% VAT applicable on advance invoicing. i.e. AED 5,000
b) Progress invoicing: Is VAT applicable on Gross amount less advance or on net amount ???
c) Retention invoicing: Is VAT applicable on Retention invoicing done at completion.
Request your response on the above at the earliest.
Regards
CAclubindia
