Tax invoices and credit notes

Tax invoices and credit notes

What is a Tax Invoice?

  • A tax invoice (also commonly known as a “VAT invoice”) is a written or electronic document which records the details of a standard­rated taxable supply.
  • A VAT registered person or business must issue an original tax invoice to the recipient of a standard­rated supply of goods or services or a deemed supply of goods or services.
  • A tax invoice must be issued within 14 calendar days of the date of supply.
  • It is, however, possible to issue a single tax invoice which covers multiple supplies made in the same calendar month to the same recipient.
  • Where a supply is zero­rated, the supplier is not required to issue a tax invoice if sufficient records are available to establish the particulars of a supply.
  • A tax invoice does not need to be issued for a VAT exempt supply.
  • Where the FTA considers that it is impractical for a tax invoice to be issued, it may determine that tax invoices, or certain particulars in tax invoices, are not required.
  • Where a registered agent makes a supply of goods or services on behalf of the principal, the agent may issue a tax invoice as if they are making the taxable supply, as long as the principal does not issue a tax invoice as well.

Why need a tax invoice?

For suppliers ­ the issuance of a valid tax invoice is important as it may dictate the time of supply, and therefore determine in which tax period the output tax should be accounted for.

For customers ­ the receipt of a valid tax invoice is important for VAT registered recipients as a tax invoice is needed as evidence to support the recovery of VAT incurred on purchases as input tax. In all cases, the receipt of a tax invoice ensures transparency regarding VAT amounts charged.


Tax invoice requirements

To be valid, a tax invoice issued by a taxable person must include all of the following information:

  • The words “Tax Invoice” must be clearly displayed on the invoice.
  • The name, address and Tax Registration Number of the supplier.
  • The name, address and Tax Registration Number of the recipient (if registered).
  • A sequential or unique number which identifies the tax invoice.
  • The date of issue of the invoice (and the date of supply, if different to the invoice date).
  • A description of the goods or services provided.
  • For each good or service: the unit price, the quantity supplied, the applicable rate of tax and the amount payable expressed in AED.
  • The amount of any discount (if any).
  • The gross amount payable expressed in AED.
  • If an invoice is issued in non­AED currency – the tax amount in AED and exchange rate must be stated.
  • If an invoice relates to a supply where the recipient must account for reverse charge VAT – a statement that the recipient must self­account for the tax and a reference to the relevant legislation.

 

Tax invoice requirements – supplies made in a GCC implementing state

In addition, where the place of supply of goods and services is in a GCC implementing state, the following information is also required for the invoice to be a valid tax invoice:

  • The Tax Registration Number that was issued to the recipient by the relevant tax authority in the implementing state; and
  • A statement identifying the supply as between the UAE and the relevant implementing state.

 

Simplified Tax invoice

A simplified tax invoice has fewer administrative requirements than a standard tax invoice. It can be issued instead of a normal tax invoice if it relates to either a supply made to a recipient that is not VAT registered or a supply made to a VAT registered recipient but the consideration for the supply is less than AED 10,000.

 

Errors and how to correct them

  • There may be instances where an invoice contains an error such as:
  • VAT has been incorrectly charged where no tax was due; or
  • the wrong amount of tax was charged.
  • If the tax shown on the invoice is:
  • higher than it should be, the supplier should account for the VAT amount stated on the invoice.
  • lower than it should be, the supplier should account for the correct amount of tax (i.e. what should have been charged) on its tax return.

In such instances, it will be necessary to adjust the errors, through the issue of a tax credit note or an additional tax invoice.

 

Examples

  • ABC Ltd charged tax of AED 100 on a supply to Customer 1 and issued a tax invoice. Three months later ABC Ltd realised that it should have charged AED 70 for the supply. ABC Ltd should have accounted to the FTA for the originally charged VAT of AED 100. It should also issue a tax credit note for the reduced amount and may adjust the VAT previously accounted for.
  • ABC Ltd also incorrectly charged VAT of AED 200, rather than AED 300, to Customer 2. ABC Ltd

 

What is a Tax Credit Note?

  • A tax credit note is a written or electronic document which records the details of any reduction in the value, and the corresponding output tax amount charged, on a supply that has already been made (e.g. a refund).
  • When reducing the amount of output tax that was originally charged on a supply, the VAT registered supplier must issue an original tax credit note to the original recipient of the supply.
  • Where a registered agent makes a supply of goods or services on behalf of the principal, the agent may issue a tax credit note as if they had made the original taxable supply, as long as the principal does not issue a tax credit note.

 

Tax Credit Note Requirements

To be valid, a tax credit note issued by a taxable person must include all of the following information:

  • The words “Tax Credit Note” must be clearly displayed on the credit note.
  • The name, address and Tax Registration Number of the supplier.
  • The name, address and Tax Registration Number of recipient (if registered).
  • The date of issue of the tax credit note.
  • The value of the supply shown on the original tax invoice, the correct value of the supply, the difference between those amounts, and the tax charged (in AED) that relates to that difference.
  • A brief explanation of the circumstances giving rise to the issuance of the tax credit note.
  • Sufficient information which can be used to identify the supply to which the tax credit note relates.

 

When can I issue electronic documents?

A taxable person may issue a tax invoice or tax credit note electronically if the following conditions are met:

  • The taxable person must be able to securely store a copy of the documents in compliance with the VAT record keeping requirements; and
  • The authenticity of origin and integrity of the document can be guaranteed.

 

Buyer-­created invoicing arrangements

Although typically a supplier is responsible for issuing tax invoices or tax credit notes, a recipient may be able to issue a tax invoice or tax credit note on behalf of the supplier if certain conditions are met.

Such arrangements are permitted where:

  1. The recipient is registered for VAT.
  2. There is an agreement in writing that the supplier will not issue a tax invoice / tax credit note for the supply.
  3. The tax invoice or tax credit note meets all of the relevant conditions to be valid (as highlighted on the previous slides).
  4. For a tax invoice the words “Tax Invoice created by buyer” or for a tax credit note “Tax Credit Note created by buyer” must be stated on the document.If a supplier issues a tax invoice or tax credit note after the recipient has already issued a “self­billed” document, the document issued by the supplier will not be treated as a valid tax invoice.

 

Record-­keeping requirements

A taxable person must retain the following records for at least 5 years from the end of the tax period to which they relate:

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