Collecting cash is not earning revenue
Subscription models separate cash from revenue more completely than almost any other business. The accounts only make sense once that separation is explicit.
A software business can be growing quickly, collecting cash quickly, and still be reporting revenue it has not earned. Subscription models separate cash from revenue more completely than almost any other business, and the accounts only make sense once that separation is made explicit.
Revenue: earned, not received
- Subscription fees are recognised across the subscription term, not on invoice. An annual contract billed up front is deferred revenue that unwinds monthly — which is why a fast-growing SaaS business can hold a very large liability and a healthy bank balance simultaneously.
- Implementation and setup fees — whether these are a distinct performance obligation or part of the subscription determines whether they are recognised on delivery or spread. Where the setup has no standalone value to the customer, it usually spreads.
- Usage and overage — recognised as the usage occurs, which requires the billing data to reach the ledger reliably rather than as a monthly summary nobody reconciles.
- Multi-element contracts — where a contract bundles licence, support, hosting and services, the transaction price is allocated across the obligations on a relative standalone selling price basis.
- Contract costs — incremental costs of obtaining a contract, such as sales commission, can be capitalised and amortised over the expected customer relationship rather than expensed on signature, which materially changes reported margin for a business investing hard in acquisition.
Development costs
Under IAS 38, research is expensed as incurred. Development is capitalised only where all the criteria are met — technical feasibility, intention and ability to complete and use or sell, probable future economic benefits, adequate resources, and reliable measurement of the expenditure. In practice most early-stage product work fails at least one criterion and is expensed; capitalisation becomes appropriate later, for defined projects with a clear path to release. Businesses capitalising all engineering cost by default should expect that to be challenged by an auditor or an acquirer.
The rest
| Item | The point |
|---|---|
| Reverse charge | Overseas hosting, tooling and advertising are received services — the VAT is accounted for by you. See VAT. |
| Place of supply | Determines whether sales to overseas customers are outside scope or zero-rated, and the evidence supports the treatment |
| Share-based payment | Employee options carry an expense under IFRS 2 even though no cash moves |
| SaaS metrics | ARR, net revenue retention, gross margin after hosting and support, and CAC payback — none of which fall out of a standard P&L without deliberate design |
Whether reported revenue reconciles to deferred revenue movement and cash collected. A business whose ARR, revenue and deferred balance cannot be tied together will be assumed to be reporting bookings as revenue — and that assumption costs far more in diligence than the underlying issue usually warrants.
Reviewed 18 August 2026 by Ahmed Nabil Selim. UAE tax rates, thresholds and deadlines change — confirm the position for your period before relying on it.
Technology & SaaS — frequently asked questions
Over the subscription period, as the service is provided. Under IFRS 15 the performance obligation for a hosted software service is satisfied over time, so an annual contract billed up front is recognised roughly one-twelfth per month with the unearned balance held as deferred revenue. Recognising the full invoice on billing overstates revenue in the period of sale, understates it thereafter, and produces growth figures that will not survive due diligence.
Only where every IAS 38 development criterion is met: technical feasibility of completion, intention and ability to complete and use or sell the asset, the way it will generate probable future economic benefits, availability of adequate technical and financial resources, and the ability to measure the expenditure reliably. Research is always expensed. In practice, exploratory and early-stage product work usually fails at least one criterion, while later work on a defined project with a clear release path may qualify. Capitalising all engineering cost by default is a position that tends not to survive audit or acquirer scrutiny.
It depends on where the supply is treated as made and the status and location of the customer. Services supplied to a recipient outside the UAE can, where the conditions are met, fall outside the scope of UAE VAT or be zero-rated — but the conditions are specific and the evidence supporting the customer's status and location is what makes the treatment stand. Separately, remember the position runs both ways: the overseas hosting, tooling and advertising you buy will generally trigger the reverse charge in your own returns.
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