In a recent ruling, the Dubai Civil Court has mandated a client to pay AED 150,000 as a 5% value-added tax (VAT) on legal fees amounting to AED 3 million. This decision follows the court’s earlier requirement for the client to settle the agreed fees with the legal firm that represented him in a legal dispute.
Background of the Case
The case pertains to an agreement between the defendant and the legal firm, which was engaged to represent him in a legal action seeking AED 30 million. In exchange for this representation, the legal firm was to receive professional fees of AED 3 million. The firm undertook all necessary legal procedures, representing the client in court and before experts until the conclusion of the case.
Judgment on Legal Fees
After the legal firm submitted a demand for its fees, the defendant acknowledged his debt via email and requested an extension for payment. However, he failed to meet this obligation, prompting the firm to initiate legal proceedings. In July, the court ordered him to pay AED 3 million in fees, along with a legal interest rate of 5% from the date of the legal claim until full payment, in addition to court costs and legal expenses.
Subsequent VAT Decision
Following the ruling, the legal firm filed a request for the court to address an overlooked aspect regarding the 5% VAT on the awarded fees. The previous judgment did not include a ruling on this tax issue, despite it being noted in the claims submitted. The court accepted this omission, stating that legal fees qualify as services subject to VAT. Given that the fee agreement included the client’s commitment to this expense, the court confirmed that he is liable for the VAT.
Final Ruling
Consequently, the court required the defendant to pay AED 150,000 in VAT related to the legal fees adjudicated, in addition to covering the costs and expenses of the request for this VAT consideration.