An interior design and fit-out contractor in the UAE sits between three money flows — the client's deposits and stage payments, the supplier and subcontractor invoices for materials and labour, and the villa owner or landlord who ultimately pays. This guide sets out the bookkeeping structure for UAE interior design studios and fit-out contractors as at October 2026 — work-in-progress tracking, VAT on deposits and stage billing, input tax on materials, and the corporate tax position for a contractor whose margins are decided on-site, not at design stage.
Why contractor books need WIP tracking, not invoiced revenue
A fit-out project can run six to twelve months. Revenue recognised on invoicing alone distorts both halves of the year: the month you invoice a large stage payment looks fantastic, the months of quiet installation work look loss-making. What an owner actually needs is the margin on each project as it progresses — the standard contractor answer is a work-in-progress ledger keyed to each project.
For each project track:
- Client deposits and stage payments received and their VAT treatment.
- Supplier and subcontractor invoices allocated to the same project code.
- Retention held by the client and released on completion.
- Variations — every approved change order priced and booked to the same project.
Without this ledger, project margin is only visible at handover, which is too late to fix anything.
The records that matter, and the rules behind them
| Record | What it captures | Rule and source |
|---|---|---|
| Project cost card | Materials, subcontractors, labour, equipment hire per project code | Basis for margin-by-project reporting and variation pricing |
| WIP ledger | Revenue recognised against project progress vs. cost to complete | Revenue recognised as obligations are satisfied (IFRS 15, adopted in the UAE for corporate tax purposes via Ministerial Decision No. 114 of 2023) |
| Deposit and stage-payment invoices | Date, amount and VAT on each client payment | VAT is due on the earliest of invoice issuance, payment due and payment receipt for periodic or advance payments (Federal Decree-Law No. 8 of 2017, Art. 26) |
| Supplier and subcontractor invoices | Input tax claimed back on materials and trades | Standard VAT rate of 5% applies; input tax recoverable where used for the business (Federal Decree-Law No. 8 of 2017, Art. 3) |
| Labour and gratuity file | Site workers, supervisors, designers | Wages through WPS (MOHRE guidance); end-of-service accrual at 21 days per year for the first five years, 30 days thereafter, capped at two years' wage (Federal Decree-Law No. 33 of 2021, Art. 51; UAE Government portal guidance) |
| Records retention | Contracts, variations, invoices, payroll, VAT and CT records | Keep VAT records at least 5 years; corporate tax records at least 7 years after the end of the tax period (FTA guidance, 27 August 2025) |
VAT on deposits, stage payments and variations
VAT on a fit-out contract follows the money, not the work:
- Advance deposits — a deposit taken before design work starts is a supply of services; VAT is generally due on the earliest of invoice issuance, payment due and payment receipt (Federal Decree-Law No. 8 of 2017, Art. 26). Do not hold it outside the VAT return waiting for the handover invoice.
- Stage payments on delivery of fit-out — each stage invoice carries 5% VAT at the time of supply.
- Retention withheld — VAT follows the invoice; where a client withholds retention, the VAT point is still the invoice date, and the withheld amount is tracked as a receivable.
- Variations and change orders — every approved variation is a new supply of services at 5%; never accumulate unapproved variations off the books.
Registration follows the standard thresholds: mandatory VAT registration above AED 375,000 of taxable supplies in 12 months, voluntary from AED 187,500 (Federal Decree-Law No. 8 of 2017, Arts. 17 and 20). A single mid-size villa fit-out can push a studio past the voluntary line in one quarter.
Input tax on materials, furniture, subcontract trades and equipment hire is recoverable where used for the business (Federal Decree-Law No. 8 of 2017, Art. 3 and input-tax rules). The main blocked category is entertainment (Cabinet Decision No. 52 of 2017, Art. 53) — client entertainment VAT is not recoverable.
Payroll and labour: the on-site cost nobody budgets
Site labour is the largest cost on most fit-out projects and is often the least controlled line. Salaries must move through the Wage Protection System (MOHRE guidance; Federal Decree-Law No. 33 of 2021). Accrue end-of-service benefits monthly on the 21-day/30-day scales on basic wage, capped at two years' wage (Federal Decree-Law No. 33 of 2021, Art. 51). Reconcile the payroll file to the project cost cards monthly so idle or transferred labour is visible before the margin statement is.
Corporate tax: what a fit-out contractor owes
- Rates: 0% on taxable income up to AED 375,000 and 9% above it (Federal Decree-Law No. 47 of 2022, Art. 3; FTA Small Business bulletin).
- Register for corporate tax within the FTA's timelines — in general, within three months of the end of the tax period (FTA Decision No. 3 of 2024). Late registration carries an AED 10,000 administrative penalty (Cabinet Decision No. 75 of 2023, penalty table).
- File the return and pay within nine months of the end of the tax period (FTA guidance, 19 August 2025).
- Annual revenue of AED 3 million or less may qualify for Small Business Relief, treating taxable income as nil, for tax periods ending on or before 31 December 2029 (Ministerial Decision No. 131 of 2026, amending Ministerial Decision No. 73 of 2023; MoF announcement, 7 August 2026). Above that, relief does not apply.
- Keep corporate tax records at least 7 years after the tax period ends (FTA guidance, 27 August 2025).
Decision aid: the monthly close for a fit-out contractor
- Book deposits and stage payments with VAT at the right tax point.
- Allocate every supplier and subcontractor invoice to a project code.
- Update the WIP ledger and margin per project.
- Accrue end-of-service benefits and reconcile WPS payroll.
- Reclaim materials and equipment input tax in the VAT return; exclude entertainment.
- Check the corporate tax calendar against the period end.
Frequently asked questions
Do we charge VAT on a deposit before work starts? Yes — for advance payments, VAT is generally due at the earliest of invoice issuance, payment due and payment receipt (Federal Decree-Law No. 8 of 2017, Art. 26).
Can we recover VAT on materials bought for a client project? Yes, where you are VAT-registered and the materials are used in the business (Federal Decree-Law No. 8 of 2017, Art. 3 and input-tax rules).
Is the end-of-service gratuity deductible for corporate tax? An accrued provision for current staff is generally recognised when the obligation exists, on the 21-day/30-day scales under Federal Decree-Law No. 33 of 2021 — keep the computation in your records for at least seven years.
Do fit-out contractors get Small Business Relief? Only where annual revenue is AED 3 million or less and the other conditions are met, for tax periods ending on or before 31 December 2029 (Ministerial Decision No. 131 of 2026).
Get the books doing their job
Finanshels provides bookkeeping services in the UAE built around project costing, WIP tracking and advance-billing VAT. For related reading, see bookkeeping for construction and contracting companies and corporate tax registration in the UAE, or talk to our team.
Last reviewed: 14 October 2026. This article reflects UAE federal law and FTA guidance as at that date; thresholds and deadlines are date-scoped and should be re-checked against the cited primary sources before acting.
