Managing foreign currency receivables in the UAE: invoices, VAT and revaluation

You can invoice in the customer’s currency, but UAE VAT is reported in AED. Article 69 of the VAT Decree-Law requires amounts in a foreign currency to be converted to AED at the rate approved by the Central Bank on the date of supply. A practical tax invoice therefore shows the invoice currency and, for each VAT amount, the AED equivalent.

Whether VAT applies at all depends on the service and the customer’s location. Services to overseas business customers may be zero-rated as exports if conditions are met; services to UAE customers billed in USD are still standard-rated. Currency does not change the VAT treatment, only its conversion.

On 1 September a Dubai firm invoices a UAE-based client USD 10,000 plus 5% VAT, USD 10,500. At the Central Bank rate on that date, say 3.6725, the invoice is AED 38,561.25, with VAT of AED 1,836.25 reported in the return.

The client pays on 15 October. The bank credits AED 38,535.00 after converting at its own rate and deducting a charge. The difference of AED 26.25 is part exchange loss and part bank charge. Record the receipt in USD, let the system calculate the realised exchange difference, and post the bank fee separately so each cost is visible.

Under IAS 21, monetary items such as receivables in a foreign currency are retranslated at the closing rate at each reporting date. The difference goes to profit or loss as an unrealised exchange gain or loss. For a business with large EUR or INR balances, this can swing monthly results noticeably; USD balances move little because the dirham is pegged to the US dollar.

For corporate tax, the Corporate Tax Law starts from accounting income, and Article 20 allows an election to recognise certain gains and losses on a realisation basis, subject to conditions. Whether that election suits your business is a question for your tax agent.

• Translate invoices at the date-of-supply rate
• Retranslate open balances at the month-end closing rate
• Record realised differences on receipt
• Keep bank charges separate from exchange differences

Exchange risk on USD receivables is small for a dirham-reporting business because of the peg. Exposure to EUR, GBP and INR is real. Our view: a UAE SME with a meaningful share of revenue in a non-pegged currency should either price in AED or USD where the market allows, keep payment terms short on those invoices, or hold a foreign currency account so receipts can pay matching costs without converting twice.

Look at receivables by currency as well as by customer. AED 600,000 owed in INR is a different risk from the same amount owed in USD.

HelloBooks invoices in AED, USD, EUR, GBP, INR and other currencies, records the AED equivalent for VAT, and tracks realised and unrealised exchange gains and losses. When you upload a statement from a USD or EUR account, the AI agent matches receipts in the original currency and separates the bank charge.

Ask “what are our open receivables in EUR and what would a 3% move in the euro do to them?” and the agent works it out from open invoices. Your accountant reviews the month-end revaluation before the period is closed.