This article was featured in Construction Business News Middle East on 11th April 2025.

As the construction sector in the UAE is rapidly growing, VAT regulations are expected to become more complex. There is a greater need for clarity and refinement regarding transitional rules, exemptions for certain real estate developments, and zero-rated supplies. The Federal Tax Authority will likely enhance enforcement mechanisms, encouraging companies to adopt digital compliance.

To stay ahead, companies must regularly review VAT policies, integrate tax considerations into project planning, and ensure robust internal controls. Adopting digital platforms that enable real-time VAT tracking and reporting is critical to ensuring accuracy and minimizing errors. Companies should also revisit contract structures to ensure VAT terms are accurately defined, avoiding future disputes. Frequent VAT health checks and staff training will help organizations optimize tax positions while remaining fully

Key Strategies to Manage VAT For Construction Projects
“When working with large conglomerates, three key strategies emerge for effectively managing VAT in construction projects,” says Nimish Goel, GCC Leader at Dhruva Consultants.

Firstly, early tax involvement in contract structuring is crucial. Construction projects often involve milestone payments, retentions, and variations, each with different VAT implications. Companies can prevent future disputes by ensuring clarity at the contract stage.”

Second, maintaining strong documentation and audit readiness is essential. Large projects often involve cross-border transactions and multiple contractors. Clear, well-organized documentation helps companies manage audits and VAT refunds effectively.

Third, investing in tax technology makes a significant difference Automated VAT calculation and reporting systems reduce errors and ensure compliance across multiple jurisdictions. Proactive planning and alignment between tax, finance, and operations teams help manage complex VAT challenges efficiently.

Navigating Changes In Tax Regulations In The Middle East Construction Industry
Recent changes in VAT and GST regulations across the Middle East have significantly impacted the construction industry, affecting cash flows and profitability. Companies must now face the challenge of managing tax costs, ensuring timely recoveries, and adapting to shorter reporting cycles. Increased regulatory scrutiny has led to stricter enforcement, and penalties for non-compliance have become more severe.

To effectively manage these complexities, Nimish advises that construction companies embed tax planning into project design and budgeting from the outset. He also emphasizes the importance of regular contract reviews and close monitoring of supply chains. Additionally, the growing complexity of VAT and GST regulations makes adopting digital tax solutions essential. “Digital platforms enable timely, accurate reporting and minimize manual intervention, reducing the risk of errors and ensuring compliance with evolving tax rules.”

Moreover, periodic training sessions and advisory support are critical to keeping teams updated on changes in tax regulations and ensuring that businesses make the most of available input tax credits.

Common Tax Challenges
Construction companies face various challenges impacting their operations and profitability, including incorrect VAT classification, disputes over place-of-supply, delays in input tax recovery, and handling complex cross-border transactions. Confusion around VAT on advance payments and retention money often leads to compliance errors.

Nimish says, “At Dhruva, we help clients by providing industry-specific guidance. Our team reviews contracts, advises on VAT treatment for various scenarios, and assists in setting up processes that reduce errors. We also conduct VAT health checks to ensure all systems are aligned with current regulations and help clients prepare for audits. We focus on building long-term relationships where we become an extension of the client’s tax and finance team.”

Steps For Construction Companies To Align Evolving Tax Frameworks
With the rapid growth of the construction industry in the UAE, it is crucial for companies to align the evolving tax frameworks to navigate the changes effectively by creating robust tax governance frameworks. This includes regular training, clear internal policies, and technology-driven solutions for effective VAT management.

Routine reviews of contracts and procurement processes are vital to ensure that VAT terms are clearly defined. Addressing potential VAT issues early can avoid future risks and disputes and ensure smooth project execution.

Nimish states, “Construction companies should build long-term partnerships with tax experts who can provide timely advice and help companies optimize their tax position while staying compliant with the regulatory requirements.”

The Impact Of Evolving Tax Regulations On The Middle East Construction Industry
Global tax trends such as digital reporting, e-invoicing, and environmental tax policies will shape the industry’s future in the Middle East.

Nimish Goel adds, “These reforms will require companies to adopt advanced technology platforms for tax compliance and integrate environmental considerations into their projects, including carbon taxation and green incentives into financial planning.”

Nimish concludes, “At Dhruva, we invest in developing digital tax solutions and expanding our advisory services on sustainability-related tax policies. We aim to ensure clients are well-positioned to comply with emerging regulations while leveraging tax incentives tied to green initiatives. We see this evolution as an opportunity to strengthen our competitive edge in the region further”.