Dubai Cassation Court Rules on VAT for Pre-2018 Construction Contracts: A Landmark Judgment for Long-Term Contracts

August 8, 2025

The Dubai Cassation Court has issued a landmark ruling in Case No. 685/2024, providing critical clarification on the application of Value Added Tax (VAT) to construction supplies and services performed prior to the implementation of VAT in the UAE on 1 January 2018. This decision has significant implications for contractors, developers, and other stakeholders involved in long-term construction projects that span the VAT implementation date.

The ruling confirms a fundamental principle of taxation: VAT cannot be applied retroactively to supplies delivered before the law came into effect, regardless of when the associated invoice was issued or payment received.

Legal and Regulatory Background

VAT in the UAE was introduced under Federal Decree-Law No. 8 of 2017, which came into force on 1st January 2018, along with the Executive Regulations (Cabinet Decision No. 52 of 2017). This legislative framework set out the mechanisms for identifying taxable supplies, VAT treatments and determining the date of supply.

There was considerable uncertainty in the construction sector regarding multi-phase, multi-year contracts during the transitional period following the introduction of VAT. Key questions arose about how VAT should be applied in the following scenarios:

Goods and services supplied before 2018, but invoiced after;
Contracts signed before the introduction of VAT that continued into 2018 and beyond;
Projects with lump-sum or milestone-based payments that overlapped the VAT threshold.

The Facts of the Case

The case before the Dubai Cassation Court involved a contractor who had entered into a construction agreement prior to 1 January 2018. Although portions of the work were completed and delivered before VAT was introduced, invoices for some of these supplies were issued only after the VAT law came into force.

The Federal Tax Authority (FTA) and the primary court initially held the position that VAT was payable on invoices issued after the implementation of VAT, regardless of when the actual supply occurred. As a result, contractors were held liable for VAT even though the goods or services had been supplied before the law came into effect.

The Ruling: Key Takeaways

The Dubai Cassation Court reversed the lower court’s decision, stating:

“VAT is not applicable to supplies of goods and services that were completed before 1 January 2018, irrespective of when the invoices were issued or payments received.”

The court cited the following critical provisions:

1. Article 25 –Date of Supply

This article outlines that the “date of supply” is generally the earliest of:

The date on which goods were transferred or services completed.
The date of invoice issuance.
The date of payment.

The court affirmed that, in cases where supply was demonstrably completed prior to 1 January 2018, that supply is deemed to fall outside the VAT regime.

2. Article 80 – Transitional Provisions

Article 80 emphasizes that VAT is only chargeable on the portion of supplies delivered after the implementation date, unless otherwise agreed contractually.

Substance Over Form: Legal Reasoning

The court adopted a “substance over form” interpretation, focusing on the actual performance and delivery of obligations, rather than the formal act of invoicing or payments.

This interpretation ensures that parties to long-term contracts are not unjustly penalized for administrative or procedural delays in invoicing or payment processing.

Implications for the Construction Sector

This decision carries significant implications for businesses in the UAE construction industry, as many continue to face unresolved transitional VAT assessments.

Pre-2018 Supplies are non-vatable

Any component of a project—whether labour, materials, or services—that was completed or delivered prior to 1 January 2018 is not subject to VAT, even if invoice issued or payment recei

Accurate Documentation Is Crucial

To rely on the VAT applicability, contractors must retain clear, dated documentation proving when supplies were completed. This includes:

Delivery notes
Site inspection reports
Work completion certificates
Progress reports

Impact on VAT Compliance and Refunds

Businesses that may have erroneously charged or paid VAT on pre-2018 supplies due to ambiguous billing practices or FTA assessments may now have grounds to:

File for VAT refunds with supporting documentation;
Challenge prior FTA audits or tax penalties;
Renegotiate or review historical contracts that span the VAT introduction date.

Conclusion

The Dubai Cassation Court’s ruling in Case No. 685/2024 sets an important precedent in the interpretation and application of VAT in the UAE, particularly during transitional periods. It provides a fair and pragmatic solution for the construction industry—a sector heavily impacted by long-term contractual obligations.

Furthermore, it is essential for contractors, developers, and legal advisors to align their contractual, accounting, and compliance practices with this interpretation. Maintaining proper documentation, ensuring clear communication with clients, and engaging in proactive tax planning are key to avoiding disputes and ensuring VAT compliance in the post-2018 UAE tax environment.

Summary of the Dubai Cassation Court VAT Ruling (Case No. 685/2024)

Background:
- UAE implemented 5% VAT on 1st January 2018.
- Many construction contracts started before VAT but continued after.

Issue:
- Should VAT apply to supplies completed before 1st Jan 2018, but invoiced or paid for after?

Court’s Ruling:
- NO VAT on goods/services supplied before 1st Jan 2018, even if:
  ▪ Invoices were issued later, or
  
  ▪ Payments were made after2018.
- The “date of supply” is based on actual delivery or performance, not invoice/payment date.

Legal Basis:
- NO VAT on goods/services supplied before 1st Jan 2018, even if:
  ▪ Invoices were issued later, or
  ▪ Payments were made after2018.
- The “date of supply” is based on actual delivery or performance, not invoice/payment date.