Inventory Accounting for GCC Trading Businesses

Build landed cost without double-counting VAT

Start with the purchase price and add directly attributable freight, duties and handling under the applicable accounting policy. Recoverable VAT is normally recorded separately from inventory cost; non-recoverable VAT may form part of cost. Customs duty and import VAT are different charges, and the VAT base is not necessarily just the foreign supplier's invoice value.

Suppose goods and qualifying landed costs total AED 20,000 before VAT and the supported import VAT is AED 1,000. If that tax is fully recoverable, the simplified inventory cost is AED 20,000, not AED 21,000. This illustration assumes the customs tax base already equals AED 20,000; an actual assessment may include duties and other adjustments. Use the customs declaration rather than back-calculating the tax from the payment alone.

Warehouse transfers and UAE designated zones

Transfers between your own locations may be stock movements rather than sales, but tax registrations, customs borders and legal ownership still matter. Keep dispatch notes, goods receipts and transport evidence, and identify which entity owns the stock. A transfer between separately incorporated companies cannot be treated as an internal movement solely because the companies share shareholders.

A UAE free zone is not automatically outside the VAT system. Specific designated-zone rules can affect qualifying goods transactions, with conditions relating to movement, consumption and evidence. Services generally follow a different analysis. Check the current designated-zone list and the particular transaction; never apply a blanket zero-rate to all free-zone stock sales.

Sales returns, damage and write-offs

A customer return should connect the original invoice, returned quantity, stock inspection and any tax credit note. For Saudi transactions covered by FATOORA, associated electronic credit/debit notes also have requirements. Changing stock quantity does not on its own correct the output tax already invoiced.

Record damaged or obsolete goods with a dated inspection, authorisation and evidence of disposal where appropriate. A stock write-down is an accounting valuation decision; deemed-supply rules and input-tax adjustments are separate questions. Theft, loss, free samples and private consumption may have different treatments, so do not treat all missing stock as the same tax event.

Stock counts and period-end reconciliation

Reconcile opening stock plus purchases and receipts minus dispatches to closing quantities. Investigate timing differences for goods in transit, consignment stock and unposted returns. Count high-value items and document who reviewed variances; a balance that agrees in money can still hide errors in quantities or unit costs.

Compare sales invoices to dispatches and supplier invoices to goods received before finalising cost of sales. Keep stock records and customs evidence alongside the accounting working papers. This guide does not establish live warehouse tracking, automated reordering or customs submission in DocMakBooks; maintain a dedicated stock register if those controls are needed.

Inventory control workflow

1. 1Maintain a product and quantity register with a consistent valuation policy.
2. 2Match purchases and import declarations to goods receipts.
3. 3Separate recoverable VAT from landed cost after eligibility review.
4. 4Link dispatches, returns and tax notes to the related invoices.
5. 5Count stock and reconcile cost of sales before preparing reports and VAT workings.

Frequently asked questions

General information, not tax or legal advice. Confirm current rules with the relevant authority.