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Open live demoProgress billing and retention for UAE contractors
A contractor's cash arrives late: a certified bill, minus retention, minus advance recovery, plus VAT on only part of it. This guide works the numbers and shows how Zeyto Construction & Contracting holds retention in its own ledger and releases it with two approvals.
Screenshot from the Zeyto demo company, with sample data.
The bill
From progress claim to tax invoice
A progress bill goes through five steps, each with its own status.
- 1Draft and percentagesPress New progress bill and enter the percent done this period for each item of work.
- 2ApprovedThe project manager approves the claim.
- 3CertifiedRecord the client's certificate number. If the consultant certified less than you claimed, type the certified gross and the lines scale to it; the difference is carried forward, disputed or written off, so it does not disappear.
- 4InvoicedPress Issue the tax invoice. The bill becomes a normal sales tax invoice in the ledger, tagged by project and item.
- 5Part paid or paidReceipts reduce the receivable and move the bill along.
Worked example
One bill, with retention and an advance
Contract value AED 1,000,000, retention 10%, advance 10%, VAT 5%.
- Certified gross this period: 300,000
- Retention withheld (10%): 30,000, so the taxable amount is 270,000
- VAT at 5% on 270,000: 13,500 (the VAT is 15,000 on the work less 1,500 on the retention)
- Tax invoice total: 283,500
- Advance recovered at 10% of gross: 30,000, with 1,500 of the advance VAT reversed
- Net receivable: 283,500 - 30,000 - 1,500 = 252,000
Retention
Held, capped and released
Retention is the part of each certified amount the client keeps until the work is accepted and defects are fixed. In Zeyto Construction & Contracting it is held as a receivable in an append-only retention ledger, so the balance can always be traced to the bills that created it and the releases that cleared it. The invoice charges VAT only on the part billed; the retention is a negative line and its VAT is declared on the release.
Read more
If the contract has a cap, retention stops when the total held reaches that share of the contract value. With a contract of AED 5,000,000 and a cap of 5%, the most that can be held is AED 250,000. To release, you record a practical completion certificate, request a release (by default 50% of the retention held at practical completion, and the whole balance at the end of the defects period), and two different people, neither the one who requested it, approve it before the release invoice is issued. With AED 100,000 held, a practical completion release is 50,000 plus VAT 2,500, an invoice of 52,500.
UAE VAT
VAT points contractors trip over
Construction services supplied in the UAE are standard-rated at 5%, whatever the building. Zero-rating of the first supply of a residential building applies to the sale of the building, not to the contractor's construction services (FTA real estate guide). A tax invoice must be issued within 14 days of the date of supply, and for construction contracts with periodic payments the date of supply is generally the earliest of the invoice, the due date on the invoice and receipt of payment; certification alone does not create it.
Read more
The FTA's real estate guide treats retention under the rules for continuous supplies of services: the supply date is the earliest of the retention being paid, a tax invoice being issued for it, or 12 months after the work was signed off as complete. If a retention stays unreleased for more than 12 months after sign-off, the VAT can be brought forward even without a release. Diary the 12-month date for every project and ask your tax adviser how to treat it, because the system does not raise it for you. An advance is a tax invoice on the day the money is received, with VAT as 5/105 of the gross, and each bill reverses the VAT already declared pro rata.
Reverse charge is not for ordinary construction work There is no domestic reverse charge for construction work. Reverse charge applies to imported goods and services, so a foreign design or specialist service bought from outside the UAE may fall under it. For UAE e-invoicing, Zeyto's connection to an Accredited Service Provider is not released yet, so we do not claim e-invoicing readiness. This page is general information, not tax or legal advice, and was last reviewed on 8 November 2026.
Go deeper
Learn the contractor workflow
Lessons in the Zeyto Academy.
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- ERP Software UAEOffline-capable ERP for UAE businesses: sales, purchase, POS, inventory, accounting, UAE VAT and reports on your own server.
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FAQ
Straight answers
Is VAT charged on retention?
The invoice charges VAT only on the part billed. The retention is a negative line on the invoice and its VAT is declared when it is released, with the FTA guidance noting a 12-month point after sign-off. Confirm the treatment with your tax adviser.
How is the advance recovered?
Each progress bill recovers the advance at the contract advance percent, never more than the advance still held. The VAT already declared on the advance is reversed pro rata so the supply is declared once.
Who can release retention?
A release is requested against a practical completion certificate or the end of the defects period, and two different people, neither the one who requested it, approve it before the release invoice is issued.
Can I see retention owed by subcontractors?
Yes. Retention you hold from subcontractors is a payable in the same ledger and follows the same release approvals. The Retention report shows both sides.
Does it work on site without internet?
Zeyto is offline-capable and runs on your own server, so billing keeps working during internet outages. Sending a document by e-mail or WhatsApp needs a connection.
See a progress bill with retention
Open the demo, or look at Zeyto Construction & Contracting.