Case Study: Strengthening VAT Compliance, Cash Flow, and Audit Readiness for a Multi-Jurisdictional EPC Business

Client Profile (Anonymised)

Client Type: EPC-style enterprise
Annual Turnover: Approx. AED 400 million (FY 2023 and FY 2025)
Primary Base: United Arab Emirates
Geographic Footprint: Saudi Arabia, Bahrain, Kuwait, USA, Europe
Industry Focus: District Cooling & Heating, Turbine Inlet Air Cooling, Thermal Energy Storage, Heat Pumps, Industrial Refrigeration, among others

Background & Context

As the client scaled operations across multiple jurisdictions, VAT compliance became increasingly complex. The business was operating in a technically sophisticated sector with varied supply chains, cross-border transactions, and mixed VAT treatments (standard-rated, zero-rated, and out-of-scope).

While VAT returns were being filed, the process was largely reactive and compliance-driven, with limited emphasis on pre-filing validation, documentation discipline, or system-led controls. The risk exposure was not immediately visible, but it existed—particularly in the areas of classification, refunds, and audit preparedness.

The management required a partner who could move beyond filing VAT returns and instead build a robust VAT control framework aligned with UAE VAT Law and the Tax Procedures Law.

Key Challenges Identified

• VAT return data prepared without structured pre-filing reconciliation to accounting records
• Inconsistent ledger structures within the ERP system for VAT-critical transactions
• Inadequate identification and archiving of documents by tax period
• Risk of incorrect classification between zero-rated and out-of-scope supplies
• VAT refunds being delayed due to documentation gaps
• Over-dependence on individual team members rather than process and system discipline
• Co-mingling of operational, treasury, and head-office transactions within a single entity

Engagement Objectives

The engagement was designed to achieve the following:

• Establish a pre-VAT-return validation framework rather than post-filing corrections
• Align accounting and ERP structures with VAT compliance requirements
• Strengthen documentation, reconciliation, and record-keeping practices
• Improve VAT cash-flow outcomes through timely and defensible refund applications
• Ensure continuous readiness for FTA audits
• Introduce structural clarity through entity-level segregation of transactions

Total CFO’s Structured Solution

1. VAT Return Pre-Preparation & Validation Framework

A systematic VAT return pre-preparation process was implemented, focusing on:

• Detailed reconciliation between VAT returns and accounting records
• Review of ledger integrity within the ERP system
• Validation of transactional data before return filing
• Clear linkage between VAT reporting and underlying source documents

This shifted the VAT process from form-filling to risk-controlled reporting.

2. Documentation Discipline & Record-Keeping

The finance function was reorganised to support compliance at scale:

• Identification of mandatory documents for each tax period
• Structured digital archiving aligned to UAE VAT Law and Tax Procedures Law
• Clear ownership within the finance team for documentation completeness
• Processes designed to remain effective even during team changes

This ensured compliance was process-driven, not person-dependent.

3. VAT Compliance & Transaction Classification

A detailed review of VAT treatments was carried out, including:

• Correct identification of zero-rated supplies
• Segregation of out-of-scope transactions
• Validation of tax invoices and tax credit notes as per legal requirements
• Evaluation of input VAT recovery eligibility

This significantly reduced classification risk and strengthened the defensibility of VAT positions.

4. Structural Segregation Through Entity Rationalisation

To address transaction complexity, a separate JAFZA entity was created. This allowed for clear segregation between:

• Head Office functions
• Treasury activities
• Inter-company transactions
• Core operational supplies

Previously, these activities were co-mingled within a DMCC entity, increasing VAT risk and obscuring financial clarity. The restructuring created transactional transparency and audit-friendly segregation.

Outcomes & Business Impact

Improved Cash Flow Through Timely VAT Refunds

• VAT refund applications were filed on time
• Documentation was tightened and reconciled thoroughly. This totally eliminated Administrative Penalty exposure of AED 2,500 for each detected case by Tax Authority. Just think of the number of Tax Invoices made each Tax Period quarter and Tax Year.
• Faster processing by the FTA
• Refund amounts credited earlier, improving cash flow predictability in tune of AED 100,000+ each Tax Period quarter
• Complete closure of refund-related matters without prolonged queries

Continuous Audit Readiness

• The business is now prepared for FTA audits at any time
• Compliance strength is embedded in systems and processes
• Reduced reliance on individual team members
• Lower operational disruption during regulatory reviews

Strategic Takeaway

This engagement transformed VAT from a compliance obligation into a controlled financial process that supports cash flow, governance, and scalability.

For EPC businesses operating across multiple jurisdictions, VAT risk does not usually arise from intent—but from complexity. The solution lies not in filing returns faster, but in building discipline before the return is filed.

Why This Matters for Similar Businesses

EPC and project-driven organisations with cross-border operations often underestimate VAT exposure until audits or cash-flow blockages occur. A structured, system-led VAT framework:

• Reduces regulatory risk
• Improves cash flow
• Enhances management confidence
• Supports sustainable growth