Is VAT charged on retention in the UAE?
Yes. The FTA's real estate VAT guide says retention has no special date-of-supply rule and falls under the continuous-supply rules of Article 26 of the VAT Decree-Law. VAT on retention is due at the earliest of the retention being paid, a tax invoice being issued for it, or 12 months after the work is signed off as complete.
Two ways contractors handle it
Some contractors charge 5% VAT on the full certified value on each progress invoice and hold retention back from the payment. Others leave retention out of the progress invoice and charge its VAT on the retention release invoice, within the 12-month limit. SupaJack Construct supports both and locks the choice after the first progress invoice posts.
Why the 12-month point matters
If retention is held for a long defects period and no invoice is issued, VAT still becomes due 12 months after the work is certified complete. A contractor deferring retention VAT must track that date for every project.
Related tools and guides
See the VAT guide for contractors, the interim payments guide, the payment certificate calculator, the retention calculator, the advance recovery calculator and the meaning of retention.
Worked example
On AED 148,800 of retention held, a contractor deferring its VAT owes AED 7,440 when the earliest trigger arrives: release, an invoice for it, or 12 months after completion is certified.
Questions people ask
Does certification trigger VAT on retention?
Not by itself; the 12-month clock starts from sign-off.
Can retention VAT be on the progress invoice?
Yes, by charging VAT on the full certified value.
What VAT rate applies?
The standard 5%.