Project Accounting for GCC Businesses

Build a margin excluding recoverable VAT

For a UAE domestic standard-rated project, assume net revenue of AED 50,000, materials of AED 20,000 excluding recoverable VAT and allocated employee costs of AED 15,000. The simplified contribution is AED 15,000 before overheads. Output VAT of AED 2,500 and eligible materials VAT of AED 1,000 are tax balances, not extra revenue and cost.

The example assumes all materials VAT is recoverable and the payroll cost is employment remuneration rather than an external contractor invoice. If recovery is restricted, the blocked tax may increase cost. Add subcontractor charges, site overheads, equipment depreciation and remaining commitments before treating the contribution as the project's final profit.

Milestones, advances and retention

A contract milestone can establish a billing right without being the sole VAT or revenue-recognition event. Receipt of advances, issuance of invoices and completion of work may trigger tax under local rules. Keep the contract, certification of work and payment evidence to support your decision about when an amount belongs in the return.

Retention can delay cash without necessarily delaying the tax point. Do not remove the withheld percentage from the VAT base just to match the bank payment. Construction, continuous supplies and property-related services can have special rules, so the UAE, Saudi, Omani or Bahraini treatment must be checked against the actual contract.

Allocate payroll and distinguish subcontractors

Use approved timesheets or another consistent allocation basis to spread employee cost across projects. Include employer contributions, leave and end-of-service provisions where required by your accounting policy. A person working on a Saudi site may have different payroll and social-insurance obligations from a UAE-based employee working remotely.

A subcontractor provides a separate supply and may issue a VAT invoice; an employee's salary is not the same kind of expense. Review employment status, supplier registration and imported-service rules rather than assuming every labour cost has the same tax treatment. WPS payments still need employee-level bank and labour-authority checks outside a margin calculation.

Variations and cross-border delivery

Document changes in scope with a revised budget and approval before billing. In Saudi Arabia, VAT invoices and related notes subject to Phase 2 require the appropriate compliant clearance/reporting process. An internal project register, certificate of work or PDF does not replace the tax invoice requirements.

A project for a foreign customer is not automatically zero-rated, especially if it concerns local property or an establishment receiving the work locally. Confirm supply location and export conditions. At each close, compare budget, actual cost, unbilled work, outstanding invoices and estimated cost to complete, then separately review VAT and payroll liabilities.

Project accounting workflow

1. 1Set a project reference, contract budget and scope-change process.
2. 2Track net revenue, supplier costs and allocated employee cost in a project register.
3. 3Review milestone and advance-payment tax points separately from cash collection.
4. 4Reconcile project totals to invoices, expenses and payroll records.
5. 5Update cost to complete and have special tax treatments reviewed before filing.

Frequently asked questions

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