Construction and contracting companies in the UAE must register for Corporate Tax and file within 9 months of year end, which is 30 September 2026 for December 2025 year ends. Profit above AED 375,000 is taxed at 9%. Revenue on long-term contracts follows the stage of completion, not cash received, and retentions held by clients are still income.
- You run a main contracting, civil works, fit-out or MEP company through a UAE licence
- Your projects run across financial year ends and are billed against progress certificates
- Clients hold back retentions from your payments, and you hold retentions from subcontractors
- You carry performance bonds, bank facilities or a loss-making contract
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Do construction and contracting companies have to register for Corporate Tax?
Yes: every construction, fit-out and MEP company licensed in the UAE, mainland or free zone, must register for Corporate Tax and file every year, including years between projects. A foreign contractor without a UAE company can also be brought in if its UAE activity amounts to a permanent establishment.
| Contractor type | Corporate Tax | Point to watch |
|---|---|---|
| Mainland contracting LLC | Register and file every year | Stage of completion revenue and retentions |
| MEP or fit-out subcontractor | Register and file every year | Retentions held by the main contractor |
| Free zone company working on mainland sites | Register and file; income from mainland customers is generally non-qualifying | De minimis limit of the lower of AED 5M or 5% of revenue |
| Foreign contractor with a UAE site office | Taxable if it has a UAE permanent establishment | Fixed place of business test |
| Contractor with revenue of AED 3M or less | Can elect Small Business Relief, still files | Losses in relief years cannot be carried forward |
| Group of contracting companies with 95% common ownership | Can apply to file as a tax group | Same financial year needed |
VAT registration is a separate test at AED 375,000 of taxable supplies, and most contractors pass it on their first project. Our construction VAT guide covers that side.
How do contractors recognise revenue on long-term contracts?
Contract revenue is recognised as the work progresses, usually by comparing costs incurred to total estimated costs, under IFRS 15. Corporate Tax starts from that accounting profit, so a contractor who books revenue only when certificates are paid reports the wrong profit in both years.
Stage of completion on one contract
| Item | Amount | How it is worked out |
|---|---|---|
| Contract value | AED 1,200,000 | Signed contract plus approved variations |
| Total estimated cost | AED 1,000,000 | Latest cost-to-complete estimate |
| Cost incurred by 31 December 2025 | AED 400,000 | Materials, labour, subcontractors to date |
| Stage of completion | 40% | 400,000 divided by 1,000,000 |
| Revenue for 2025 | AED 480,000 | 40% of 1,200,000 |
| Amount billed to the client | AED 550,000 | Progress certificates issued |
| Billed ahead of work (contract liability) | AED 70,000 | 550,000 minus 480,000 |
Work in progress and unbilled work
Where work done runs ahead of certificates, the difference is a contract asset, often called unbilled work or WIP, and it is income for the year. Keep the quantity surveyor’s valuation or the cost-to-complete schedule as support. Our guide to IFRS 15 revenue recognition explains the method in more detail.
How are retentions, subcontractor costs and labour camps treated?
A retention is part of the contract price the client holds back until handover or the end of the defects liability period, and it is earned revenue even though it has not been paid. Leaving retentions out of revenue until they are released understates profit, sometimes for years.
Retentions on both sides
| Balance | Where it sits | Tax effect |
|---|---|---|
| Retention held by your client | Retention receivable | Already in revenue as work is done |
| Retention you hold from a subcontractor | Retention payable | Already in costs as their work is done |
| Retention unlikely to be released after a dispute | Written down with evidence | Reduces profit when supported |
Subcontractors, labour camps and site petty cash
- Subcontractor costs: deductible against their invoices and certified payment applications.
- Labour camp rent, transport and worker visas: deductible site costs; allocate them to projects.
- Site petty cash: deductible only with receipts, so issue petty cash against signed vouchers and top up only on reconciliation. Our petty cash management guide sets out the controls.
What about performance bonds, finance costs and loss-making contracts?
Bank charges and commissions on performance bonds and advance payment bonds are deductible finance costs of the contracting business. Interest on overdrafts and project facilities is generally deductible too, although larger borrowers can have net interest restricted by the interest limitation rules.
Loss-making contracts
When estimated costs on a contract exceed its value, the expected loss is recognised in the accounts as soon as it is foreseen, not spread over the remaining work. A company with an overall tax loss can carry it forward against future profits, subject to the conditions in the Corporate Tax law, which our loss carry-forward guide explains.
One trap: if you elect Small Business Relief in a loss year, that loss cannot be carried forward. A contractor expecting a large profitable project next year should compare both routes before electing.
How does a construction company file its Corporate Tax return?
A contractor’s return is built project by project before any figures reach EmaraTax.
List every open and closed contract
Record contract value, approved variations, estimated total cost and cost to date for each project at year end.
Calculate stage of completion
Work out revenue earned per contract and compare it to amounts certified to find contract assets and liabilities.
Reconcile retentions
Agree retention receivable to client statements and retention payable to subcontractor accounts.
Provide for foreseeable losses
Recognise the full expected loss on any contract whose costs will exceed its value.
Clear site costs and petty cash
Match subcontractor invoices, camp costs and petty cash vouchers to projects.
Review owner and group transactions
Payments to owners, directors, relatives and sister companies must be at arm’s length and go on the connected person disclosure.
Choose relief or the standard calculation, then file
Compare Small Business Relief with 9% above AED 375,000 if revenue is AED 3M or less, submit on EmaraTax and pay by the deadline.
Which records should a contractor keep for Corporate Tax?
A contractor keeps project, site and finance records for 7 years, and many contracts outlast that clock only because of defects liability periods.
- Contracts, variation orders and progress certificates
- Cost-to-complete schedules and quantity surveyor valuations
- Client retention statements and subcontractor retention ledgers
- Subcontractor agreements, invoices and payment applications
- Labour camp leases, transport contracts and site petty cash vouchers
- Bank facility letters, bond charges and interest statements
What deadlines matter for construction companies in 2026 and 2027?
The first date is 30 September 2026 for the return and payment of any contractor with a 31 December 2025 year end.
| What | Date | Who |
|---|---|---|
| Corporate Tax return and payment | 30 September 2026 | Contractors with a 31 December 2025 year end |
| Return for a 31 March 2026 year end | 31 December 2026 | Contractors with a March financial year |
| Appoint an e-invoicing Accredited Service Provider | 31 March 2027 | Businesses with revenue under AED 50M |
| E-invoicing go-live | 1 July 2027 | Businesses with revenue under AED 50M |
| Deregistration after closing a dormant contracting company | On time, to avoid AED 1,000 a month up to AED 10,000 | Companies being cancelled |
What Corporate Tax penalties apply to contractors?
A contractor that files late pays AED 500 a month for 12 months and AED 1,000 a month after that, and missing site records cost AED 10,000, under Cabinet Decision 75/2023 as amended.
| Violation | Penalty | Contractor trigger |
|---|---|---|
| Late registration | AED 10,000, waived if the first return is filed within 7 months of the first period end | Company set up for a tender, never registered |
| Late return | AED 500 a month for 12 months, then AED 1,000 a month | Waiting for final accounts on a disputed project |
| Late payment | 14% a year, calculated monthly | Tax paid when the next certificate is paid |
| Incorrect return | From AED 500, plus 1% a month on any tax difference | Revenue on cash received, retentions left out |
| Records not kept | AED 10,000, or AED 20,000 for a repeat within 24 months | Site spend with no receipts |
| Late deregistration | AED 1,000 a month, up to AED 10,000 | Dormant company cancelled without deregistering |
Penalties on a contractor compound across projects and years. A company that registered late, filed 14 months late and could not support its petty cash would face AED 10,000, then AED 6,000 for the first 12 months plus AED 2,000 for the next 2, and another AED 10,000 for records: AED 28,000 before any tax.
Is a penalty already running on your contracting company?
A qualified accountant can review your stage of completion, retentions and filing status in 15 minutes.
6 Corporate Tax mistakes construction companies make
These are the contracting errors we fix most often.
- Recognising revenue on cash received. Profit lands in the wrong year and the return is incorrect.
- Ignoring retentions. Earned income waits years for release, so profit is understated.
- Paying site costs from petty cash with no receipts. The cost cannot be supported and the records penalty applies.
- Leaving unbilled work out of year end. Work done but not certified is still revenue.
- Spreading a foreseeable contract loss. The full expected loss belongs in the year it is identified.
- Electing relief in a loss year without thinking ahead. The loss is lost for future profitable projects.
How can a contracting company avoid penalties?
Run a monthly project close alongside the certificate cycle. Paci’s bookkeeping from AED 599 a month covers smaller contractors.
- Monthly: update cost to date and estimated cost to complete for every project
- Monthly: record certificates, retentions receivable and retentions payable
- Monthly: reconcile site petty cash against signed vouchers
- Quarterly: review contracts for foreseeable losses
- Quarterly: allocate camp, transport and visa costs to projects
- Annually: prepare stage of completion schedules for every open contract
- Annually: plan e-invoicing readiness and file by 30 September
What should a contractor do after a missed deadline or FTA notice?
File the late return with the best project figures available and pay the tax, because the monthly penalty and 14% yearly charge keep running while a dispute is settled. Our missed deadline guide sets priorities for the first week.
If an earlier return used cash-basis revenue, correct it through a voluntary disclosure before the FTA opens a review. To challenge a penalty, request reconsideration within 40 business days and then approach the Tax Disputes Resolution Committee; our reconsideration guide shows the steps. Contractors with gaps in project records should start with catch-up bookkeeping.
FTA notice or missed deadline on a contracting company?
Send us the notice and we will explain whether to file, disclose or request reconsideration.
Worked example: a Sharjah MEP contractor with AED 2.4M revenue
An illustrative Sharjah MEP contractor has a 31 December 2025 year end. Revenue earned by stage of completion is AED 2.4M: AED 2.0M received in cash, AED 150,000 held as retentions by clients, and AED 250,000 of work certified or valued but unpaid. Profit on that basis is AED 520,000.
| Line | Stage of completion (correct) | Cash received only (wrong) |
|---|---|---|
| Revenue | AED 2,400,000 | AED 2,000,000 |
| Profit before tax | AED 520,000 | AED 120,000 |
| Income above AED 375,000 | AED 145,000 | AED 0 |
| Corporate Tax at 9% | AED 13,050 | AED 0 |
| Tax with Small Business Relief | AED 0 | AED 0, but the return is incorrect |
| Penalty if filed 4 months late | AED 2,000 | AED 2,000 |
On the correct basis, tax is 9% x (520,000 minus 375,000) = AED 13,050, or nil if the contractor elects relief with revenue under AED 3M. The cash basis leaves out AED 400,000 of earned revenue, which in a later FTA review means the tax difference, an incorrect return penalty and 1% a month.
In-house, freelancer or accounting firm for a contractor's return?
A contractor with one or two short jobs can prepare a return in-house, but companies with multi-year contracts, retentions and bank facilities need stage of completion work that a firm handles routinely.
| Route | Cost | Management time | Risk | Suits |
|---|---|---|---|---|
| In-house accountant only | Salary already paid | Medium to high | Tax adjustments and disclosures missed | Short jobs, few retentions |
| Freelance accountant | Typical market range: low to mid | Medium | Depends on contract accounting experience | Small subcontractors |
| Paci | Fixed quote within 24 hours | Low | Qualified accountant review | Contractors with long-term projects and retentions |
Our Corporate Tax filing service includes the project schedules behind the return.
What contracting company owners actually ask us
My small company is in loss with under AED 70,000 turnover. Do I need a full balance sheet, and can I use Small Business Relief after someone ticked no last year?
A loss-making company still files, and relief is elective for revenue up to AED 3M for tax periods ending on or before 31 December 2029. Eligibility is tested each period, so review this year’s election on its own facts. Prepare a full profit and loss account and balance sheet, since the return draws on both.
I set up a SHAMS company in 2021, never used it and never registered for Corporate Tax. Am I stuck with AED 10,000?
Every company must register whatever its revenue, so the penalty applies to dormant companies, and the waiver needs the first return filed within 7 months of the first period end. If you cancel, deregister on time too. See our SHAMS guide and Corporate Tax deregistration guide.
My Ajman LLC just registered and received a AED 4,500 late registration penalty. How do I handle returns from here?
The standard late registration penalty is AED 10,000, so read the notice to confirm what the AED 4,500 relates to. Each return is then due 9 months after your year end, and filing the first one within 7 months of the first period end can bring a waiver of the registration penalty.
What costly mistakes should I avoid before 30 September with group companies and shareholders?
No tax payable does not mean no filing. Payments to owners, directors, relatives and sister companies must be at arm’s length and disclosed with the return, and paying after the deadline costs 14% a year calculated monthly. Groups with 95% common ownership can consider a tax group.
What records matter most when starting a new contracting company?
Keep proper books from the first contract: 7 years of records are required and missing ones cost AED 10,000, or AED 20,000 for a repeat. Track every payment to owners and relatives from day one.
Frequently asked questions
How much Corporate Tax does a contracting company pay in Dubai?+
A contracting company pays 0% on the first AED 375,000 of taxable income and 9% on the rest. A contractor with taxable income of AED 900,000 pays 9% x 525,000 = AED 47,250. Contractors with revenue of AED 3M or less can elect Small Business Relief instead.
Do MEP companies need to file a Corporate Tax return if they had no projects this year?+
Yes. Filing does not depend on activity, so an MEP company between projects still files within 9 months of its year end. Our nil return guide covers companies with no revenue.
Are retentions taxable before they are released?+
Retentions are part of revenue earned as work is completed, so they are included in profit before the client pays them. A retention that becomes doubtful after a dispute can be written down with evidence.
What bookkeeping does a construction company need for Corporate Tax?+
Job costing by project, a WIP and stage of completion schedule, retention ledgers for clients and subcontractors, and controlled petty cash. Our construction bookkeeping guide sets this up.
Do interior fit-out and engineering firms follow the same rules?+
Fit-out contractors use the same contract accounting, while design and engineering consultancies focus more on time-based WIP and partner payments. See our guides for interior design and fit-out companies and engineering and architecture firms.
Where are the general Corporate Tax filing and penalty rules explained?+
Our Corporate Tax return filing guide explains the 9-month deadline, our penalties guide lists each penalty, and our Small Business Relief guide covers the AED 3M election.
Get your construction company's Corporate Tax return reviewed for free
In a free 15-minute review we look at your long-term contracts, WIP, retentions and loss position, and whether relief makes sense. You get a fixed filing quote within 24 hours.
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- A fixed quote within 24 hours, no hourly billing
- We reply on WhatsApp or email, whichever you prefer
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- FTA: Waiver of penalties
- FTA: Registration for VAT
- FTA: Small Business Relief guide (PDF)
- Ministry of Finance: Small Business Relief decision
Checked against these sources on 15 September 2026. This guide is general information for UAE businesses, not advice on your specific facts.