What is the 12-month VAT rule for construction in the UAE?
It is the backstop in Article 26 of the VAT Decree-Law. For contracts with periodic payments or consecutive invoices, VAT is due at the earliest of the tax invoice, the payment due date on it, or payment. If none happens within 12 months of the work being provided, VAT is triggered at the 12-month point.
Retention and the 12 months
The FTA guide applies the same rule to retention. VAT on retention is due at the earliest of payment, a tax invoice for it, or 12 months from the date the work was signed off as complete, for example certified. Retention released two years after completion may therefore carry VAT accounted for a year before the cash arrives.
Why contractors miss it
Unbilled work and retention that sits for more than a year are easy to lose track of. The VAT falls due regardless of whether anyone invoiced, and late accounting attracts penalties.
How SupaJack Construct helps
Retention is tracked by tranche with its release date, and a tracker flags retention releases that are coming due, so the finance team sees retention approaching the 12-month point before it passes.
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 contractor's work is certified complete on 1 October 2025 with AED 200,000 retention held for the defects period. No invoice is issued and nothing is paid. On 1 October 2026 the 12 months pass, and VAT of AED 10,000 on the retention becomes due in that period's return.
Questions people ask
Does the 12 months apply to single supplies too?
Article 25 has its own rules. The 12-month backstop is in Article 26 for continuous supplies.
Does certification start the 12 months on retention?
The guide counts from sign-off as complete, such as certification.
Can a contractor avoid it by not invoicing?
No. The backstop applies when nothing else happens.