Do I Charge VAT on an Advance Payment or Deposit?

Quick answers

Why the money triggers it

UAE VAT attaches to the earliest of several events: the goods being transferred, the service being completed, the invoice being issued, or the payment being received.

Receiving payment is on that list, and for an advance it is usually the earliest thing that happens. So the tax point is the day the funds arrive, and the VAT belongs to the tax period containing that day.

Waiting until the work is finished to account for it puts the VAT in the wrong period, which is a reporting error even though the total eventually paid is the same.

Invoice within fourteen days of the money, not at the end of the job

This is the part that catches service businesses.

A client pays you 50% up front in March for work you will deliver in June. The tax invoice for that 50% is due within fourteen days of March's payment. You do not wait until June and invoice the whole thing at once.

You issue a tax invoice for the amount received, with the ordinary invoice fields, and it carries the VAT on that amount. When the work completes, you invoice the balance.

A refundable deposit is not an advance

The distinction is what the money is for.

An advance is consideration — part of the price, applied against what you will deliver. VAT applies on receipt.

A genuine security deposit is not consideration. It is held against damage or default, refundable in full if nothing goes wrong, and it does not pay for anything. No VAT arises when you take it.

But the moment it stops being refundable and starts paying for the supply — applied to the final bill, or retained because the client defaulted — it becomes consideration and VAT applies then.

The label on the payment does not decide this. Calling something a deposit while treating it as the first instalment of the price makes it an advance.

Several advances, several tax points

Each payment is its own event. A project paid in three instalments has three tax points, three tax invoices, and the VAT lands in whichever period each payment falls into.

There is no consolidating them at the end, and no deferring the early ones to match the delivery date.

Do not tax the same money twice

The final invoice covers the balance, not the whole contract value again.

If the total is AED 100,000 and you have already invoiced and taxed a AED 30,000 advance, the closing invoice is for AED 70,000. Reference the earlier invoice on it so the file reads clearly.

An invoice for the full amount at the end, alongside an earlier invoice for the advance, declares AED 130,000 of supplies against a AED 100,000 contract — and the correction is a credit note plus an explanation nobody wants to write.

If the client cancels

If you refund an advance you have already accounted for, the supply has not happened and the VAT comes back out. That is done with a credit note against the original invoice, in the period the refund occurs.

If you keep the money because the client walked away, the position depends on what the payment was: retained consideration for a supply that was contracted for is a different case from a forfeited security deposit, and it is worth asking rather than assuming.

The client's side

A VAT-registered client who pays you an advance can reclaim the input VAT on it once they hold your tax invoice — they do not wait for the work either.

This is a small argument for invoicing advances promptly rather than treating them as an accounting afterthought: your invoice is what unlocks their reclaim, and they will ask for it.

Where Fatura Go fits

An advance is invoiced like anything else — a tax invoice for the amount received, dated when you received it, with VAT on the line.

For the closing invoice, describe the balance rather than the full contract value and reference the earlier invoice number, so the two documents reconcile to one contract when someone reads them together.

Frequently asked questions