Working capital: what it means for UAE businesses.

What working capital means

Also called: Net current assets.

Working capital is the difference between a business's current assets, such as cash, receivables and stock, and its current liabilities, such as supplier balances, tax owed and short-term borrowing. It measures whether the business can meet the bills falling due over the next twelve months from assets that will turn into cash in the same period.

UAE tax rules put particular pressure on it. Under Article 25 of the VAT law, VAT is due on the date of supply, which is the earliest of events such as delivery, completion, payment or issuing the tax invoice. The return and payment must reach the FTA by the 28th day after the tax period ends. A business that sells on 90 day terms can therefore pay the VAT before the customer pays the invoice. Bad debt relief under Article 64 only helps once a debt is more than six months old and written off.

Corporate Tax adds a further liability: tax for a year is payable within nine months of its end under Article 48, so it should be held as a current liability. Measuring working capital monthly helps an SME see these cash calls coming.

How it works

• Working capital equals current assets less current liabilities; the current ratio divides the first by the second.
• Output VAT on credit sales is payable by the 28th day after the tax period ends, even if the customer has not paid.
• Corporate Tax for a financial year is payable within nine months of the year end, so the provision is a current liability.
• Longer customer terms, higher stock and faster supplier payments all tie up working capital.
• Bad debt relief can recover VAT on debts written off more than six months after the supply, once the customer has been notified.

Worked example

A Dubai food distributor extracts its current assets and current liabilities at the end of a VAT quarter.

Cash and bank	AED 120,000
Trade receivables	AED 450,000
Inventory	AED 300,000
Total current assets	AED 870,000
Trade payables	AED 380,000
VAT payable by the 28th day	AED 42,000
Corporate Tax payable	AED 36,000
Short-term bank loan	AED 150,000
Total current liabilities	AED 608,000
Working capital	AED 262,000

The current ratio is about 1.43, but only AED 120,000 is cash, so the VAT and supplier payments depend on collecting receivables quickly.

Common mistakes

• Ignoring the VAT on unpaid customer invoices when forecasting cash for the 28th day payment.
• Leaving the Corporate Tax provision out of current liabilities because the payment is months away.
• Counting stock that will not sell within a year, or overdue debts, at full value in current assets.

The law

• Federal Decree-Law No. 8 of 2017 on Value Added Tax, Article 25 (Date of Supply) and Article 64 (Adjustment for Bad Debts)
• Cabinet Decision No. 52 of 2017 (VAT Executive Regulation), as amended, Article 64 (Tax Return and Payment)
• Federal Decree-Law No. 47 of 2022, as amended, Article 48 (Corporate Tax Payment)

Frequently asked questions

Is negative working capital always a problem?

Not always. A business paid in cash that buys on credit, such as some restaurants, can run with negative working capital. It becomes a problem when payables, VAT or loans fall due before the cash to meet them arrives.

Can we delay paying VAT until the customer pays?

No. VAT is due by reference to the date of supply under Article 25, and the return and payment deadline is the 28th day after the tax period. Relief for unpaid debts comes only through the bad debt rules.

Related terms

Accounts receivable · Accounts payable · Bad debt relief · Cash flow statement · VAT tax period. See every term in the UAE tax glossary.

For the full picture, read our guide: UAE VAT Filing Calendar 2026: Every Quarterly Deadline.

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