When a UAE company evaluates an offshore ERP or software vendor, the conversation usually starts with features, integrations, timelines and development cost.
But two questions deserve to come much earlier:
What happens to VAT?
And where will our data actually sit?
Getting either one wrong can distort the vendor comparison before the technical evaluation has even started.
The 5% VAT that may not be a real cash cost
One misconception we still encounter is a UAE buyer adding 5% VAT directly to the price of an offshore software build.
For a taxable UAE business importing relevant services, Article 48 applies the reverse-charge mechanism. The overseas supplier does not charge UAE VAT; the UAE recipient accounts for it. Where the buyer has full input-tax recovery, the output VAT and recoverable input VAT offset each other.
Take a simple AED 100,000 software project:
Offshore vendor invoice: AED 100,000
Reverse-charge VAT at 5%: AED 5,000
Input VAT recovered: AED 5,000
Net VAT cash cost: AED 0
That does not mean VAT can be ignored. Businesses making exempt supplies may have restricted recovery, in which case part of the VAT can become a genuine cost.
But for a business with full recovery, adding another 5% to an offshore vendor's commercial price can create the wrong comparison.
The second question is data
Once the commercial position is clear, the next conversation should be about where the system and its data will live.
Cross-border transfers of personal data are governed by Article 23 of the UAE's federal PDPL. Depending on the circumstances, transfers can involve adequacy or safeguards such as contractual protections and other permitted grounds.
This makes several questions worth asking every offshore vendor:
Where will production data be hosted?
Which subprocessors can access it?
In which countries are those subprocessors located?
What happens to the data when the contract ends?
What are the breach-notification obligations?
For healthcare, the conversation is different again. UAE health data is subject to a stricter localisation regime, with defined exceptions rather than a general permission to host patient data offshore.
Ask before you shortlist, not after
Tax and data questions should not be paperwork left for the final procurement meeting.
They affect the real project cost, architecture, hosting model, contracts and sometimes the vendor shortlist itself.
For UAE businesses considering an ERP build with an offshore development team, the commercial position can be more straightforward than expected. Accucia's UAE ERP guidance similarly explains its offshore delivery model and reverse-charge approach.
The better vendor evaluation question is therefore not simply:
“How much will you charge to build our ERP?”
It is:
“What will this arrangement actually cost us, where will our data sit, and what protections are written into the contract?”
For a deeper breakdown of UAE VAT, PDPL, offshore ERP delivery, hosting and procurement considerations:
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