Hotel Accounting in the UAE: Managing Revenue, Deposits, and OTA Payments

Hotel Accounting in the UAE: Managing Revenue, Deposits, and OTA Payments

A technical accounting guide for UAE hotels, serviced apartments, and hospitality groups

Hotel accounting in the UAE fails most often not only due to VAT rate errors, but also poor revenue architecture, Incorrect recognition timing, weak deposit tracking, and misunderstanding of OTA settlement flows which lead to overstated revenue, misstated VAT liabilities, and management reports that cannot be relied on.

This article assumes familiarity with accrual accounting and focuses on how UAE hotel accounting actually breaks down in practice, particularly in environments with heavy OTA reliance, advance collections, and mixed taxable supplies.

1. Revenue recognition in UAE hotels

From an accounting standpoint, hotel revenue in the UAE is straightforward in theory and frequently wrong in execution. The core principle is clear: accommodation revenue is recognized as the stay is delivered.

In practice, many UAE hotels still recognize revenue on, booking confirmation, Payment receipt or even OTA payout date, but all three are incorrect. PMS systems (e.g., Opera, Fidelio) often prioritize operations over accounting granularity, leading to aggregated feeds that complicate IFRS 15 compliance. Revenue should not be recognized on booking, payment, or remittance but over the stay as the performance obligation is satisfied.

1.1 Advance collections are balance sheet items

Advance payments, whether collected directly or via an OTA, represent a contract liability until the accommodation is provided. The correct treatment is:

• Cash or OTA receivable

• Deferred revenue (contract liability)

This applies equally to, Refundable bookings, Non-refundable bookings, Group blocks or Corporate negotiated rates. The UAE market has a structural bias toward early collection, especially during high season and major events. That does not change the recognition point.

1.2 Non-refundable does not mean earned

A non-refundable booking does not accelerate revenue recognition. The performance obligation is unchanged. The hotel has not earned revenue until it has made the room available for the contracted stay.

Recognizing non-refundable bookings as revenue on receipt is one of the most common audit findings in UAE hospitality groups.

2. Deposits, no-shows, and forfeited amounts

2.1 No-shows

No-show revenue is recognized only when the no-show event occurs, not when the booking becomes non-refundable.

From a financial reporting perspective, this is usually recognized as room revenue or other operating income, depending on internal policy.

From a VAT perspective, this area requires discipline. Certain no-show charges may be treated as compensation rather than consideration for a supply, depending on contractual wording and enforcement. UAE hotels frequently misclassify these amounts for VAT.

2.2 Cancellations with penalties

Cancellation penalties are recognized when the right to retain the amount crystallizes. That is usually the cancellation date or the contractual cutoff date.

Again, VAT treatment depends on whether the penalty represents consideration for a supply or compensation. This is not an academic distinction. It directly affects VAT output tax.

3. OTA models and revenue gross vs net

OTA accounting is where most UAE hotel financial statements could go wrong.

3.1 Merchant model vs agency model

Hotels must clearly identify whether an OTA is acting as:

• Agent, collecting commission

• Merchant, reselling accommodation

and this determination affects, Gross vs net revenue presentation, VAT base and Receivable and settlement accounting

Many UAE hotels incorrectly treat merchant model bookings as agency bookings, leading to inflated revenue and VAT misstatements.

3.2 Agency model accounting

Under an agency model:

• Revenue is recognized at the gross room rate charged to the guest

• OTA commission is recognized as a distribution cost, not netted against revenue

• VAT is calculated on the full taxable consideration, subject to local VAT rules

Netting commission against revenue is an income statement presentation error and distorts margin analysis.

3.3 Merchant model accounting

Under a merchant model:

• The hotel recognizes revenue only for the net amount receivable from the OTA

• The OTA is the principal in the transaction with the guest

• VAT treatment depends on the contractual supply chain

Misidentifying this model is one of the most frequent errors seen in UAE hotel audits.

4. OTA settlements, receivables, and timing mismatches

OTA payouts rarely align with stay dates. This creates persistent reconciliation issues if not handled correctly.

4.1 Correct accounting flow

At stay date, recognize revenue and recognize OTA receivable. At payout date, clear receivable and record bank receipt. Many hotels shortcut this by recognizing revenue on payout date. This creates revenue volatility unrelated to operational performance.

4.2 Chargebacks and post-stay adjustments

OTA disputes, guest refunds, and rate adjustments should adjust receivables and revenue in the period of adjustment, not retroactively reopened months.

Weak controls here often lead to revenue leakage that is never properly investigated.

5. VAT on room revenue and packages

5.1 Room revenue

Standard accommodation in the UAE is subject to VAT at the prevailing rate unless explicitly exempt. VAT is calculated on the taxable consideration - and may be different for advances and deposits

Early VAT declaration on advance payments is a common compliance error.

5.2 Packages and bundled services

Packages combining accommodation with meals, transfers, or activities must be analyzed carefully. Allocation of consideration across components is required where VAT treatment differs.

Many UAE hotels apply VAT simplistically to the full package without assessing the underlying supplies, exposing themselves to audit adjustments.

6. Food and beverage revenue separation

6.1 Why F&B separation matters

F&B revenue should never be lumped into room revenue for convenience. Separation matters for:

• Margin analysis

• VAT tracking

• Outlet performance

• Management decision-making

This applies even where meals are included in room packages.

6.2 Internal outlet accounting

Hotels operating multiple outlets should treat each as a revenue center with clear cost attribution. Failure to do so leads to artificially strong room margins and underperforming F&B operations hidden inside aggregated figures.

7. Monthly close, management reporting, and reconciliations

7.1 Bank and OTA reconciliation discipline

Monthly bank reconciliations are not sufficient for hotels. OTA clearing accounts must be reconciled independently and in detail.

Unreconciled OTA balances are one of the clearest indicators of weak financial control in UAE hospitality businesses.

7.2 Deferred revenue roll-forward

Deferred revenue should be rolled forward monthly, reconciling:

• Opening balance

• New advance bookings

• Revenue recognized

• Cancellations and no-shows

If this schedule does not exist, reported revenue cannot be trusted.

7.3 Management reporting

Effective UAE hotel reporting separates:

• Operational performance

• Cash movement

• Accounting recognition

Hotels that rely purely on bank inflows to assess performance consistently misjudge profitability and working capital requirements.

For more detail, also read -

Accounting Guide for Hotel Owners, B&Bs, and Short-Term Rentals | Antravia
Choosing the Right Accounting System for Your Hotel

References

1. International Accounting Standards Board (IASB)
   IFRS 15 – Revenue from Contracts with Customers
   https://www.ifrs.org/issued-standards/list-of-standards/ifrs-15-revenue-from-contracts-with-customers/

2. International Accounting Standards Board (IASB)
   IFRS Interpretations Committee Agenda Decisions on Principal vs Agent Considerations
   https://www.ifrs.org/supporting-implementation/how-to-apply-standards/agenda-decisions/

3. Federal Tax Authority (UAE)
   Federal Decree-Law No. 8 of 2017 on Value Added Tax
   https://tax.gov.ae/en/laws-and-decisions/federal-decree-law-no-8-of-2017-on-value-added-tax.aspx

4. Federal Tax Authority (UAE)
   VAT Executive Regulations – Cabinet Decision No. 52 of 2017
   https://tax.gov.ae/en/laws-and-decisions/cabinet-decision-no-52-of-2017-on-the-executive-regulations-of-the-federal-decree-law-no-8-of-2017.aspx

5. Federal Tax Authority (UAE)
   VAT Public Clarification VATP013 – Treatment of Compensation and Damages
   https://tax.gov.ae/en/publications/public-clarifications.aspx

6. Federal Tax Authority (UAE)
   VAT Guide – Supply of Services (VATG300)
   https://tax.gov.ae/en/publications/guides.aspx

7. Institute of Chartered Accountants in England and Wales (ICAEW)
   Principal vs Agent: Revenue Recognition Practical Guidance
   https://www.icaew.com/technical/financial-reporting/ifrs/revenue

8. International VAT Association (IVA)
   VAT Treatment of Deposits, Cancellation Fees, and Compensation Payments
   https://www.ivatassociation.org/resources

Disclaimer

This article is provided for general informational purposes only and does not constitute accounting, tax, or legal advice. Regulations and requirements in the United Arab Emirates change frequently, and their application can vary depending on business structure, free zone, or activity type. Antravia AE provides strategic financial and business advisory guidance.
Readers should always verify details directly with the relevant UAE authorities or consult a licensed local professional before making business or financial decisions.