What happens to VAT when a property development is cancelled in the UAE?
Where the developer refunds payments, it issues tax credit notes that reverse the output VAT it accounted for when the payments arrived. The FTA real estate guide adds that money kept instead must be explained: if it is consideration for a service, it stays taxable at 5% and no credit note is issued.
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Timing
A tax credit note must be issued within 14 days of the event that reduces the VAT, under Article 62 of the VAT law.
Contractors on cancelled projects
A contractor whose contract is terminated still accounts for VAT on work certified and invoiced. Compensation for termination needs analysis of whether it is a payment for a supply or damages.
How SupaJack Construct helps
Credit notes go through an approval queue, and approval posts the reversal of VAT to the ledger.
Related tools and guides
See the VAT guide for contractors, the VAT calculator, the payment certificate calculator, the retention calculator, finance and VAT in SupaJack Construct, the answer on whether a payment certificate triggers VAT and the meaning of e-invoicing.
Worked example
A developer took AED 500,000 plus AED 25,000 of VAT as a deposit on an office unit, and the project is cancelled. It refunds AED 525,000 and issues a credit note within 14 days, reducing its output VAT by AED 25,000.
Questions people ask
Is a credit note required?
Yes, where the payment is refunded.
What if the developer keeps a fee?
If it is consideration for a service, VAT applies.
How long is there to issue it?
14 days from the event.