Key takeaways
- A VAT-registered UAE business owes VAT at the 5% standard rate on a deposit or advance payment as soon as it receives the money, even if the goods or services haven't been delivered, because Article 25 of Federal Decree-Law No. 8 of 2017 makes the date of supply the earliest of delivery, completion, payment or tax invoice.
- VAT on a part payment is due only on the amount actually received or invoiced: Article 19 of the VAT Executive Regulation (Cabinet Decision No. 52 of 2017) says tax is due "to the extent of the payment made or stated in the tax invoice".
- A UAE VAT-registered supplier must issue the tax invoice within 14 days of the date of supply, and an advance payment creates a date of supply of its own (Article 67 of the Decree-Law).
- If a deal is cancelled and a deposit is refunded, the supplier corrects its output VAT with a tax credit note under Article 70 of the Decree-Law, rather than editing the original invoice.
- The word "deposit" has no separate VAT treatment in the Decree-Law text; what matters is whether the money is payment for the supply or security that will be returned, and a security deposit needs a documented position before you leave it off your return.
Do you charge VAT on a deposit or advance payment in the UAE?
Yes, if the money is a payment toward a taxable supply and you are VAT-registered, you account for VAT when you receive it. You don't wait for delivery, completion or the final invoice.
The reason is the structure of the date-of-supply rule. Article 25 of Federal Decree-Law No. 8 of 2017 lists several events that can fix the date of supply for goods and services (delivery, making goods available, completing the service, receiving payment, issuing the tax invoice) and treats the earliest of them as the date on which tax is calculated. Receiving payment is one of those events, so an advance payment pulls the tax point forward. The standard rate is 5% (Article 3 of the Decree-Law), so a payment of AED 105 that covers a taxable supply carries AED 5 of VAT even if you haven't done any work yet. Two limits apply: if you aren't VAT-registered, none of this applies to you, and a payment toward an exempt supply carries no output VAT.
When does VAT become due: what is the date of supply?
The date of supply is the earliest of the events listed in Article 25 of the Decree-Law, and the table below shows how the common ones work for an ordinary sale. Whichever comes first is the tax point.
| Event | Does it trigger VAT? | Legal basis |
|---|---|---|
| Goods delivered or made available to the customer | Yes, on that date | Decree-Law Article 25 |
| Service completed | Yes, on that date | Decree-Law Article 25 |
| Payment received (including an advance or deposit toward the supply) | Yes, on that date, for the amount received | Decree-Law Article 25; Executive Regulation Article 19 |
| Tax invoice issued | Yes, on that date, for the amount invoiced | Decree-Law Article 25; Executive Regulation Article 19 |
Checked 12 November 2026 against the texts on the UAE Legislation portal.
Contracts with periodic payments or consecutive invoices (a monthly retainer, say) follow Article 26 instead: the supply date is the earliest of the invoice date, the invoice due date or the date payment is received, with a long-stop date in the law. A deposit on a retainer is therefore treated the same way: it fixes the tax point for the period it covers.
How much VAT do you account for on a part payment?
You account for VAT on the amount received or invoiced, no more. Article 19 of the Executive Regulation says that where tax is due because a payment is made or a tax invoice is issued, the tax is due "to the extent of the payment made or stated in the tax invoice", and the rest becomes due at the later supply date under the Decree-Law.
Here is a hypothetical to make it concrete. Say a VAT-registered Dubai fit-out contractor agrees a project at AED 200,000 plus VAT and takes a 30% deposit.
| Step | Amount excluding VAT | VAT at 5% | When it goes on the VAT return |
|---|---|---|---|
| Deposit received | AED 60,000 | AED 3,000 | Tax period in which the deposit is received |
| Final instalment on completion | AED 140,000 | AED 7,000 | Tax period of completion or invoice, whichever is earlier |
| Total | AED 200,000 | AED 10,000 | Split across two returns |
This is an illustration, not a client case. The contractor doesn't pay VAT on AED 200,000 up front; it pays VAT on AED 60,000 in the quarter or month the deposit arrives, and on the balance later.
14 days: the time limit for a VAT-registered supplier to issue a tax invoice after the date of supply, which includes the date an advance payment is received. Source: Federal Decree-Law No. 8 of 2017, Article 67(1), checked 12 November 2026.
When must you issue the tax invoice for an advance payment?
You must issue the tax invoice within 14 days of the date of supply, and because a received advance payment is itself a date of supply, the clock starts when the money lands. Article 67(1) of the Decree-Law sets the 14 days, counted from the dates in Articles 25 and 26. Clause 2 lets the Executive Regulation set other time limits for particular cases, so check the regulation for your sector.
So a deposit invoice is a real tax invoice, not a pro forma. Article 59 of the Executive Regulation requires it to show the issue date and, where different, the date of supply.
If you'd rather not track these dates by hand, the free UAE compliance calendar lists them for your company.
What happens to the VAT if the customer cancels and you refund the deposit?
If you refund a deposit on which you've already accounted for VAT, you reduce your output tax by issuing a tax credit note. Article 70 of the Decree-Law requires a registered supplier to issue an original credit note when output tax is reduced on a supply and to deliver it to the recipient. A credit note reduces the supplier's output tax and the recipient's input tax for the period in which it is received (Article 63).
Keep the credit note with the original invoice and the refund record: it is the audit trail that justifies the lower output VAT on your return.
Is a refundable or security deposit treated differently?
It can be, but the Decree-Law and Executive Regulation text we checked doesn't define "deposit" or give it a separate rule. The test the legislation points to is whether the money is a payment toward the supply (which triggers the tax point under Article 25) or security held and returned if nothing goes wrong, such as a damage deposit.
A booking or reservation deposit that will be applied to the final price is a payment toward the supply and should be treated as one. A damage or security deposit that you hold separately and return in full may not be consideration at all, but if you keep part of it for a breach or a loss, the retained amount is a different question. Because the treatment depends on the contract wording, document your reasoning in writing and check the FTA's VAT guidance on tax invoices and time of supply on tax.gov.ae before you leave a deposit off a return.
What most guides don't tell you
- A deposit can put VAT in a return before the work starts, so cash flow matters. You owe the output VAT in the period the deposit arrives, which is fine if the customer paid VAT-inclusive, but a quote that said "AED 60,000 deposit" without saying VAT is on top leaves you absorbing the tax out of your own margin. State in the quote whether deposit amounts include VAT.
- An unissued invoice doesn't delay the tax point. Because payment received is itself a trigger, forgetting to invoice a deposit doesn't push the VAT to a later period; it only means you've also missed the 14-day invoice deadline.
- Part payments by instalment can create several tax points. For a project paid in milestones, each payment received or invoiced fixes a tax point for that amount under Article 19, so the VAT is spread across the returns, not lumped at completion.
- A refund without a credit note leaves your return overstated. Returning a deposit changes your bank balance, not your output tax; the VAT you already declared stays on the return until a tax credit note reduces it.
Which deadlines apply to your company?
Deposit invoices, VAT return filing dates and payment dates all run on fixed clocks that depend on your registration and tax period. The free UAE compliance calendar lists the dates that apply to your company, personalised from a few questions, as a PDF and calendar file.
Frequently asked questions
How do I handle VAT on discounts and credit notes?
A discount or refund given after you've issued a tax invoice is corrected with a tax credit note under Article 70 of the Decree-Law. The credit note reduces your output tax and the customer's input tax in the period in which it is received (Article 63).
What is the tax point for VAT in the UAE?
The tax point is the date of supply, which Article 25 of the Decree-Law sets as the earliest of delivery, completion, receipt of payment or issue of the tax invoice. For periodic contracts, Article 26 uses the earliest of the invoice date, the invoice due date or payment.
What is a valid tax invoice in the UAE?
A valid tax invoice is a written or electronic document recording a taxable supply and its details, issued within 14 days of the date of supply and showing the issue date and, where different, the supply date. The full list of required fields is in the Executive Regulation, so check it before building an invoice template.
How do I correct a mistake on a previous VAT return?
If you find an error in a return you've already filed, you correct it with the FTA, normally through a voluntary disclosure on EmaraTax. The procedure and any thresholds are set by the FTA, so confirm them on tax.gov.ae before filing.
About Qawi · Qawi is a corporate services firm licensed in the Sharjah Media City (SHAMS) free zone, handling company formation, visas and PRO, bookkeeping, VAT and corporate tax for UAE businesses. Guides are researched from FTA, Ministry of Finance and free zone sources. Qawi on LinkedIn
Sources
- Federal Decree-Law No. 8 of 2017 on Value Added Tax (UAE Legislation portal): Articles 3, 25, 26, 63, 67, 70, 85
- Cabinet Decision No. 52 of 2017, Executive Regulation of the VAT Decree-Law (UAE Legislation portal): Articles 19, 59
- Federal Tax Authority, VAT guides and public clarifications
- KPMG UAE, summary of Federal Decree-Law No. 16 of 2025 amending the VAT Law from 1 January 2026 (interpretation only: the amendments it lists do not change the date-of-supply, invoice-timing or credit-note articles used above)
Last checked: 12 November 2026
This is general information, not tax or legal advice for your specific situation.