A tax invoice is a document delivered to a customer by a registered supplier when they offer goods or services. It is a formal document that contains information about the transaction, including the amount of VAT charged.

Tax invoices are essential for VAT compliance since they serve as proof of a taxable transaction. Businesses must keep copies of tax invoices for an agreed-upon period of time and ensure that the invoices they issue comply with Federal Tax Authority (FTA) standards.

Why tax invoices are important?

Tax invoice give a comprehensive and orderly record of all sales transactions for tax filing, financial analysis, and other purposes.

• To support a tax credit request made by a tax-registered customer
• Determining whether the offered goods or services are taxe
• Determine the payment date based on receipt of the tax invoice
• In order for the state’s tax system to recognize transactions and provide a tax identity or tax proof number
• A tax invoice will be required to support the claim for input tax credits
• Tax invoices will assist the appropriate government agency in preventing tax evasion
• To appropriately compute tax charged for a fiscal year and assist in claiming tax relief from the government

TYPES OF TAX INVOICE

1. FULL TAX INVOICE: The most detailed sort of tax invoice is a full tax invoice. It contains all of the information required for a legitimate tax invoice, such as the seller’s and buyer’s names and addresses, a description of the products or services, the amount and cost, any taxes that were charged, the precise date of the trade, and an invoice number. For more complex transactions or transactions involving foreign trade, a comprehensive tax invoice is usually necessary.
2. SIMPLIFIED TAX INVOICE: A simplified tax invoice is a tax invoice that is less thorough. It contains considerably fewer details than a full tax invoice, but nonetheless meets the authority’s standards for a legal tax invoice. Simplified tax invoices are frequently used for smaller transactions or when the full tax invoice criteria are not required.
3. ELECTRONIC TAX INVOICE: A tax invoice that is sent and received electronically is known as an electronic tax invoice. Because of the simplicity and reliability of electronic transactions, this sort of tax invoice has grown more prevalent. To be regarded as valid, digital tax invoices must satisfy the identical standards as paper tax invoices.

What to include in tax invoice?

• The name, address, and GST number of the seller
• The name and address of the buyer
• A description of the goods or services being sold
• The quantity of the goods or services
• The price per unit and the total price
• Any applicable taxes, including the rate and amount
• The date the invoice was issued
• The invoice number

CREDIT NOTE

A credit note is a document issued by a supplier to revise or alter a previously issued tax invoice. It is effectively an inaccurate invoice that diminishes the customer’s payment amount.

The main objectives for generating a credit note are to make required financial modifications and to guarantee the buyer that a specific amount of money will be refunded or amended in a forthcoming transaction.

Is credit note a refund?

A refund and a credit note are related but not identical. A refund is a direct credit payback, whereas a credit note is both an acknowledgement and an evidence of credit owed.

Furthermore, a credit note is more likely to imply future transactions between the parties than a refund would. The credit note can either be applied to future payments or used to lower the buyer’s payment on an outstanding invoice.

Why and when do credit notes get used?

A credit note can be provided either before or after the payment has been submitted. The timing reflects where the problem occurs in the procedure for invoicing.

It is usually issued for one of the reasons listed below.

• Invoice error: This can be as simple as inaccurate invoice pricing, improper goods or orders, or a discount or error in tax treatment of a taxable supply under VAT.
• Order error: if a consumer’s order is flawed or destroyed. This can range from having an entirely incorrect order to only having a few small problems.
• Change of order: A buyer may alter or cancel an order that has already been paid for or placed, whether due to internal or external factors.
• Customer dissatisfaction: When a product didn’t live up to quality standards or the merchant sold or described it wrongly.

What to include in credit note?

• The suppliers and customer’s names and address
• A unique credit note number
• The date of issuance
• A reference to the original tax invoice (with its details)
• The rationale for issuing the credit note
• The corrected amount