Tax invoice records a transaction of buy and sell of goods or services. VAT as applicable is a transaction based tax. Hence, tax invoices are a critical component of VAT laws in any jurisdiction. The law in force is expected to use both the transaction data and also mandate capture of additional data to ensure adequate capture of information of the transaction, while maintaining availability of evidence for future verification or audits.
Hence understanding the impact of VAT laws in force on tax invoices is critical for any business to achieve 100 % compliance on a consistent basis at all times. Invoices which are subject to tax laws are termed as Tax Invoices as they need to be compliant to the guidelines in force, businesses which are eligible and mandated to register for tax are bound to issue Tax Invoices.
- 1 Introduction to Tax Invoices under VAT in UAE:
- 2 Ready reference to applicable UAE VAT guidelines:
- 3 Information on parties to contract:
- 4 Invoice details:
- 5 Details of goods or services being transacted:
- 6 Invoice totals and tax details:
- 7 Other information:
- 8 Recommendation for ease of compliance:
- 9 Conclusion:
Introduction to Tax Invoices under VAT in UAE:
The VAT laws implemented in UAE is comparatively simple when compared to other geographies where VAT has been implemented. The list of goods or services under Exempt and Zero rates are very limited and most of the goods and services fall under the standard rated VAT. This extends to requirements of Tax Invoice.
Tax invoice is a record of a transaction. The transaction involves transfer of ownership (physical or by title) by one party to another or delivery of service by one party to another. The parties to the contract may be in the same geography or different geography, The transaction occurs on a specific time for a specific value. The currency of the transaction may be local or foreign currency, more information with regard to transaction settlement and terms of the transaction exists. These information are usually captured in an Invoice. We can call this transaction information. The VAT law covers this and also mandates additional information capture specific to applicable VAT information on the transaction.
The following section explains the requirements of the VAT laws for the Tax Invoice to be considered fully compliant and avoid penalties as specified in the law.
Ready reference to applicable UAE VAT guidelines:
A comprehensive list of notifications by the UAE FTA is listed below which have guidelines in relation to Tax Invoices:
- Federal Decree-Law No. (8) of 2017 on Value Added Tax – Dated:23-08-2017
- Chapter 5, Article (65 to 69)
- Cabinet Decision No. (52) of 2017 on the Executive Regulations of the Federal Decree-Law No (8) of 2017 on Value Added Tax – Dated:26-11-2017
- Title 13, Article (59)
- Decision No. (3) of 2018 on Tax Invoices – Dated:20-05-2018
- Decision No. (4) of 2018 on Tax Invoices – Dated:17-12-2018
- Decision No. 7 of 2019 on Tax Invoices and Credit Notes – Dated:26-05-2019
- VAT Public Clarification Tax Invoices VATP006 – Dated:Undated
- Tax Invoice checklist-Dated: Undated
Information on parties to contract:
The links to the laws, with reference to specific sections will help you read them up, this post, we are going to deep dive on specific areas, which when taken care of, will ensure 100 % compliance of your tax invoices to UAE FTA standards.
Any transaction will have a minimum of two parties, buyer and seller. In some cases, there may be three parties involved, i.e. buyer, seller and receiver of goods or services being a party other than buyer or seller, we will come to this later in this section. As per the VAT laws it is necessary to capture the mailing address of the buyer and seller clearly in the Tax Invoice. A clarification has also been issued in this regard, as confusion existed on whether to use the physical address or mailing address, and UAE FTA has clarified the need to use, mailing address. This helps us to establish the place of supply.
The full name as per trade license of the parties to transaction is to be captured, you may include names of person with whom you are dealing in the company, but it is not required as per the guidelines hence not covered.
It is also important to capture the information with regard to Tax Registration Number (TRN) of both parties, in the B2B transactions, along with details of VAT treatment for transactions with the party. The place of supply is also required to be captured, this may or may not be reflected in the Tax Invoice, but critical for subsequent FTA Audit reports generation as and when requested.
For e.g Party A is in Dubai (seller) and Party B is in Abu Dhabi (buyer), both registered for VAT, and dealing is in standard rated VAT products, then records of both party should capture the information, of party name, mailing address, TRN , Place of supply as Dubai and VAT Treatment as 5 % standard rated VAT. The Tax invoice will reflect the Buyer’s Name, Address, TRN number. Plus of course the seller Name, address and TRN number. This applies to full Tax Invoice.
A simplified Tax Invoice is also advised by the UAE FTA, specifically for B2C or retail business. In case of simplified Tax Invoice only the seller information is required and the buyer information is not required to be reflected in the Tax Invoice.
Dubai being a trading hub, many businesses are located here, who buy goods from outside UAE, and sell to Customers outside UAE. In such cases, as long as the goods do not touch the shores of UAE, they are outside the scope of UAE VAT. In case of such transactions, the business based in Dubai should ensure that the invoice records clearly reflect, the Bill to and Ship to Addresses. In such cases, the bill to is the buyer, the ship to is the party who is expected to collect the goods.
Every transaction record should be unique in nature, to identify the specific transaction. To this effect traditionally, date and invoice numbers are used in invoices. The UAE VAT guidelines has a clear requirements for these information.
- The invoice numbers should be in sequence, you can customize the invoice number to your preference, but it must be in sequence.
- The date of the Tax Invoice is by default the date of supply. If the date of supply is different from the date of the Tax Invoice, then it needs to be clearly specified in the Tax Invoice.
- You can read more about the date of supply in our earlier blog post.
The date of Invoice, is critical to identify records pertaining to a tax period, for filing the tax return for the period. Given the pre-tax culture, we do notice many businesses, issuing tax invoices freely, instead of proforma invoices, based on customer requests. For e.g. the usual payment mechanism in contracting is the contractor raises an invoice, the developer verifies the work performed, and issues a payment certificate, based on the payment certificate the payment is effected by the developer.
The timeline from raising of invoice, to the point of payment receipt, is usually over 90 days. Technically, based on the nature of transaction,the transfer of goods or rights to goods or delivery of service, is crystallized only at the point of issuance of payment certificate, post verification by the developer, this is when the date of supply occurs.
Raising Tax invoices at the right time, reduces the receivable period in the books, apart from reducing cash flow issues on account of, payment of taxes from own funds, instead of, from customer receipts.
Details of goods or services being transacted:
Any invoice usually includes the details of items being transacted, i.e. specific good or service. the quantity, the rate, discount if any and total for the net value of item. The UAE VAT establishes specific requirements on what to include and how to calculate the net values. The key points mandated are:
- Tax Invoice should clearly detail the item and items should be listed line wise.
- The quantity should be clearly detailed
- The rates is preferably inclusive of VAT
- Discount if any, should be prior to application of VAT
- The subsequent clarification highlights that Gross value need not be reflected line wise.
- In case the transaction in a currency other than AED, then the VAT amount should be reflected in AED.
- The conversion rate should be reflected and based on Central Bank of UAE as on the date of the transaction.
- The rounding off using standard mathematical rounding principles should be used to round the amount to the nearest fil. For e.g. .356 to be rounded to 0.36 and 0.344 to be rounded to 0.34
Invoice totals and tax details:
The invoice totals should clearly reflect the total of the Tax Invoice inclusive of VAT, the total VAT in AED for the transaction should also be clearly shown. The total amount in words to be shown.
The above graphic from the FTA website, clearly reflects the requirement for invoice totals, though the example is of a simplified Tax invoice. Please note shortfalls in compliance to Tax Invoice requirements will attract administrative penalties.
Invoices usually, incorporate the terms and conditions of the transaction, details of payment terms and may also include specific notes to the Tax Invoice recipients. The UAE VAT guidelines specifies, what should mandatorily be included, but is not restrictive to inclusion of any other information in the Tax Invoice.
The only mandatory requirement is that the Invoice should necessarily be clearly specified as “TAX INVOICE”.
Recommendation for ease of compliance:
The usual practice prior to introduction was to use pre-printed Invoices or invoice template. While this practice can still be continued, it places significant onus on the business to remain consistently compliant at all times and has scope for errors to creep in.
As practicing accountants, we consistently recommend use of FTA notified accounting systems. The FTA notification is accorded based on submissions by the software vendors, wherein compliance to requirements are validated. The list of vendors notified by UAE FTA is available on their website.
The benefit of using an FTA notified accounting software is that most of the requirements as detailed above, are already coded in. Alerts are raised when any of the required information is not adequately captured. For e.g. Accounting systems allows capture of vendor and customer information including TRN numbers, this helps avoiding having to capture the full details every time.
The automated system controls also makes compliance to item details and total requirements quite easy to comply with.
This post has tried, to clearly highlight the key aspects, mandated by UAE FTA, for Tax Invoices in the regulatory framework for VAT in UAE. Knowing the requirements is 50 % of the challenge, this post is intended to help with the same. Of course, knowing the requirement also drives consistent compliance as long as robust business practices are in place.
As stated earlier, the requirements for Tax Invoice, as laid out in the various tax laws for the country is comparatively simple, especially, when compared with countries, where VAT has been in force for a longer period of time. While in future it can become more complex, for now compliance is easy to achieve.
We are of the opinion, given the applicable penalties for non-compliance, that businesses should seriously consider investment in FTA notified accounting systems.
Overture Accounting and Bookkeeping is a Dubai mainland registered accounting firm, providing accounting, bookkeeping, and VAT services to clients since 2017. This post is based on FTA guidelines as published on their website for general consumption and our experience of managing VAT compliance for our customers in the region. You can view details of our accounting and bookkeeping services offered here