Construction Industry Case study
Client Goal:
The construction company specializing in luxury hotel projects in the UAE faced tax audit penalties after applying for VAT deregistration. The company aimed to minimize tax liabilities, resolve compliance issues, and reduce penalties imposed by the Federal Tax Authority (FTA).
Problems Identified:
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1: VAT Audit and Penalties
- The FTA conducted a tax audit upon receiving the VAT deregistration application and that audit revealed that VAT had not been calculated on certain advances recorded in the Monthly Trial Balance, leading to additional tax liabilities.
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1: VAT Audit and Penalties
- The FTA conducted a tax audit upon receiving the VAT deregistration application and that audit revealed that VAT had not been calculated on certain advances recorded in the Monthly Trial Balance, leading to additional tax liabilities.
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2: Incorrect Input Tax Credit Claims
- Input Tax Credit was claimed on meals and food for staff, which was deemed irrecoverable as per Article 53 of Cabinet Decision 52 of 2017.
- The company had to adjust its VAT returns and pay administrative penalties.
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2: Incorrect Input Tax Credit Claims
- Input Tax Credit was claimed on meals and food for staff, which was deemed irrecoverable as per Article 53 of Cabinet Decision 52 of 2017.
- The company had to adjust its VAT returns and pay administrative penalties.
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3: Cash Flow and Financial Burden
- The additional VAT liabilities and penalties created financial strain, impacting the company’s working capital.
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3: Cash Flow and Financial Burden
- The additional VAT liabilities and penalties created financial strain, impacting the company’s working capital.
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Solution Approach
We utilized our in-depth knowledge of UAE VAT regulations and decided to make a comparison of Last three Quarters VAT liability reports, review the reconciliation of Output Tax Paid and Revenue from accounting books, and to carry out a qualitative analysis of the Vat reports.
Solutions Provided:
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1: Tax Reconciliation and Adjustments
- At first, we conducted a detailed review of project contracts and progress invoicing from Q4 2017 to Q2 2019.
- Subsequently, we identified that VAT on advances had already been accounted for in subsequent quarters but was not reflected correctly in the Trial Balance.
- Then, we prepared a reconciliation report for FTA tax auditors, demonstrating the impact of tax adjustments across quarters.
- We were able to successfully reduce the total tax liability and penalties by 25%.
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1: Tax Reconciliation and Adjustments
- At first, we conducted a detailed review of project contracts and progress invoicing from Q4 2017 to Q2 2019.
- Subsequently, we identified that VAT on advances had already been accounted for in subsequent quarters but was not reflected correctly in the Trial Balance.
- Then, we prepared a reconciliation report for FTA tax auditors, demonstrating the impact of tax adjustments across quarters.
- We were able to successfully reduce the total tax liability and penalties by 25%.
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2: Reclassification of ITC on Employee Meals
- We identified an exception under Article 53, Clause 1c, which allows ITC claims if expenses are contractually required for employees to perform their roles.
- Then we provided employment contracts and meal supply agreements as evidence that meals were a contractual obligation for site workers, to the tax auditors entrusted by the Federal Tax Authority (FTA).
- We were able to successfully argue with tax auditors, leading to a full waiver of penalties related to ITC claims on staff meals.
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2: Reclassification of ITC on Employee Meals
- We identified an exception under Article 53, Clause 1c, which allows ITC claims if expenses are contractually required for employees to perform their roles.
- Then we provided employment contracts and meal supply agreements as evidence that meals were a contractual obligation for site workers, to the tax auditors entrusted by the Federal Tax Authority (FTA).
- We were able to successfully argue with tax auditors, leading to a full waiver of penalties related to ITC claims on staff meals.
Thanks to expert guidance, we managed to significantly reduce our tax burden. With a thorough review and strong advocacy, we secured a 25% reduction in penalties and had all staff meal-related penalties waived. Best of all, we achieved this while staying fully compliant, ensuring our financial stability

The construction company specializing in luxury hotel projects in the UAE faced tax audit penalties after applying for VAT deregistration. The company aimed to minimize tax liabilities.
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