Interim payments, certificates and retention in UAE construction
UAE contractors are paid in stages. Each month the contractor submits an interim payment application, the client or consultant certifies the amount due, and the contractor invoices the certified value less the advance being recovered, plus 5% VAT. The client holds back retention from each payment and releases it at handover and after the defects period.
The sequence every month
An interim payment application claims the work done and materials on site, supported by inspection reports. The consultant or client issues a payment certificate for the amount agreed. The contractor then raises a tax invoice for the certified value, less the share of the advance payment being recovered, with 5% VAT. The client pays the invoice less retention.
| Step | What happens | Example (AED) |
|---|---|---|
| Application | Contractor claims work done this month | 1,100,000.00 claimed |
| Certificate | Consultant certifies the agreed value | 1,056,000.00 certified |
| Advance recovery | 10% of the certificate repays the advance | 105,600.00 |
| Invoice | Taxable value plus 5% VAT | 950,400.00 + 47,520.00 = 997,920.00 |
| Retention | 5% of the certificate held from payment | 52,800.00 |
| Payment | Invoice less retention | 945,120.00 |
Why the certificate is the gate
Without a certificate there is no agreed figure to invoice, and an invoice raised on the claimed amount will be disputed. SupaJack Construct does not let an invoice be raised until a certificate exists, and the invoice carries the certificate and application numbers so the audit trail runs from the site record to the ledger. Try it with the payment certificate calculator.
Advance recovery
A mobilisation advance is invoiced with VAT when received and then recovered as a percentage of each certificate until repaid. Each recovery is capped at what is still outstanding, and reverses the matching share of the advance's VAT so the same money is not taxed twice. The advance recovery calculator builds the schedule.
Retention
Retention is a percentage of each certificate the client holds as security for completion and defects. It is commonly released half at handover and half at the end of the defects liability period, each release applied for, certified and invoiced in its own right. The retention calculator shows what is held and what comes back when.
When VAT is due
The FTA treats construction with stage payments, advances and retentions as a continuous supply under Article 26 of the VAT Decree-Law. VAT is due at the earliest of a tax invoice, the payment due date shown on it, or receipt of payment, and 12 months after the work was provided if none of those has happened. A certificate alone does not trigger VAT. For retention, VAT is due at the earliest of its payment, an invoice for it, or 12 months after the work is signed off as complete. Read the VAT guide for contractors.
Common mistakes
- Invoicing the claimed amount instead of the certified amount, which invites a dispute and a credit note.
- Applying the advance recovery percentage after the advance is fully repaid, so the client underpays.
- Tracking retention as a single running total that nobody can reconcile to the certificates.
- Releasing retention without the handover or end-of-defects record the contract requires.
- Charging VAT on retention twice, once on the progress invoice and again on the release invoice.
Running it without spreadsheets
SupaJack Construct links each application to its inspections, each certificate to its application and each invoice to its certificate, and keeps retention and advance recovery as sums of what each certificate actually recorded. See the money trail or use the payment certificate calculator, retention calculator, advance recovery calculator and VAT calculator.
Questions people ask
What is an interim payment application?
The contractor's periodic claim for work done and materials on site, usually monthly.
Who issues the payment certificate?
The client or its consultant, confirming the amount due on the application.
Can I invoice before the certificate?
Not in SupaJack Construct, and generally not without risk of dispute; the certificate fixes the agreed figure.
Does a certificate trigger VAT?
No. VAT is triggered by the invoice, the payment due date on it, or payment, whichever is earliest.
How is the advance recovered?
As a percentage of each certificate, capped at what is still outstanding.
Is VAT charged twice on the advance?
No. The advance is taxed once when invoiced; recoveries reduce the taxable value of later invoices.
What is retention?
A percentage of each certificate held back as security for completion and defects.
When is retention released?
When the contract says, commonly half at handover and half after the defects period.
When is VAT due on retention?
At the earliest of its payment, an invoice for it, or 12 months after the work is certified complete.
What is the defects liability period?
The period after completion during which the contractor must fix defects; its length is set by the contract.
Can the client keep the retention?
If defects are not remedied, the contract may let the client use it to fix them.
Sources
- FTA VAT Guide: Real Estate (VATGRE1), section 12 on the construction industry
- Federal Decree-Law No. 8 of 2017 on Value Added Tax and amendments (Federal Tax Authority)
- Federal Decree-Law No. 8 of 2017 on Value Added Tax (FTA original text)
- Federal Tax Authority: VAT legislation
- Executive Regulation of the VAT Decree-Law (Cabinet Decision No. 52 of 2017, Ministry of Finance)