VAT on advance payments UAE businesses receive before delivery

You ask in plain English, the AI does the bookkeeping work, and you or your accountant approve the result.

• You ask: “Were there any customer deposits this quarter that we have not invoiced yet?”
• The AI agent: The AI scans receipts matched to customers without a sales invoice, or larger than the open invoices, and lists them as probable advances with the VAT that may be due on each.
• You review: You confirm which receipts are true advance payments and which are refundable security deposits, then approve the advance tax invoices the AI drafts.

Article 25 of Federal Decree-Law No. 8 of 2017 sets the date of supply as the earliest of several events, including the date payment is received and the date a tax invoice is issued. Article 67 then requires the tax invoice within 14 days of the date of supply. Together, these mean a deposit received on 20 September can fix the tax point for that amount in September, not when you deliver in November.

A refundable security deposit, such as a damage deposit returned if nothing goes wrong, is often treated differently because it is not payment for a supply. The facts of each arrangement matter; your tax agent should confirm the treatment before you set a default.

When an advance arrives, the AI suggests an advance invoice for the amount received, splitting it into net value and VAT. The payment clears that invoice. When the final invoice is raised, the advance is deducted so VAT is not counted twice.

• Detect: receipts with no matching invoice are flagged as possible advances
• Invoice: an advance tax invoice records the VAT on the amount received
• Settle: the final invoice shows the full supply, less the advance already taxed
• Report: the VAT 201 draft picks up output VAT in the period it became due

A customer orders a kitchen for AED 63,000 including VAT and pays AED 31,500 on 25 September. That deposit includes AED 1,500 VAT (AED 31,500 times 5/105). The AI drafts an advance invoice for AED 30,000 plus AED 1,500 VAT dated 25 September, which lands in the third-quarter return.

The kitchen is installed on 10 November. The final invoice shows AED 60,000 plus AED 3,000 VAT, less the advance of AED 31,500, leaving AED 31,500 to pay, of which AED 1,500 is the remaining VAT for the fourth quarter. Your accountant reviews both returns before filing on EmaraTax.