Under UAE VAT law, all business owners are required to maintain their financial and accounting records going back at least five years. This rule applies to all business owners, whether or not they have registered for VAT.
Financial documents to be maintained
- Annual accounts, general ledgers, and purchase day books.
- Records of all inward and outward supplies of goods and services (sales and purchases), including all imports and exports.
- This includes all kinds of tax invoices, credit notes, debit notes, delivery challans and bills of entry.
- Documents related to the disposal of goods and services, including those used for non-business purposes.
- Purchase invoices where you have not paid any input tax.
A tax invoice is a document that records a taxable sale, along with any details pertaining to it. While every VAT registered business is required to issue a tax invoice to its customers when making a sale, this can be done in a few ways, depending on who the customer is. Let’s take a look at each type of tax invoice.
Normal Tax Invoice
A normal tax invoice is issued by a VAT registered business to a customer, if the customer also happens to be registered under VAT, or if the value of supply made is greater than AED 10,000. If the goods were delivered, or the payments were received, before invoicing a customer, the respective invoice(s) must be issued within 14 calendar days from the date of the supply.
Contents of a normal tax invoice
A VAT-compliant tax invoice should contain:
- “Tax Invoice” clearly displayed on the invoice document.
- A unique and sequential invoice number.
- The name, address, and Tax Registration Number (TRN) of the supplier and the recipient (if the recipient is also VAT registered).
- The invoice issue date, unless the date of supply of a particular transaction is different from the invoice issue date. In this case, mention both dates on the invoice.
- The name of all goods and services sold, along with the quantity or volume supplied, applicable VAT rate, a description, and the amount to be paid (in AED).
- The amount deducted, if giving out discounts, and the gross amount to be paid by the customer (in AED).
- The payable tax amount, alongside the exchange rate, if the payment is made in any currency besides the UAE Dirham (AED).
Simplified Tax Invoice
There’s another type of tax invoice called a “simplified tax invoice,” which is issued if:
- It’s a B to C transaction where the customer is not VAT registered.
- The value of supply does not exceed AED 10,000.
A simplified tax invoice must contain:
- “Tax Invoice” clearly displayed on the invoice document.
- The name, address, and Tax Registration Number (TRN) of the supplier.
- The date on which the tax invoice was issued.
- A description of the goods/services supplied.
- The total invoice amount and the VAT owed by the customer.
While invoices are normally issued by a supplier to a customer, a self-billed invoice is different. Here, the customer will issue an invoice to themselves during purchases, on behalf of the supplier. For this to work, both the supplier and the customer must be registered under VAT. This happens most frequently when the recipient’s accounting practices are more efficient than the supplier.
A self-billed invoice can be issued by a customer if:
- The words “tax invoice raised by buyer” are clearly displayed on the invoice.
- The recipient of the goods/services is VAT registered.
- The supplier and recipient agree, in writing, that the supplier shall not issue a tax invoice for any supply involved in the self-billed invoice.
- It satisfies all the requirements for a normal tax invoice.
A credit note documents any changes that either cancel or reduce the value of a previous transaction. They’re usually created to record changes made after an invoice has been issue to a client. There are two kinds of credit notes: a tax credit note and a self-issued tax credit note.
When can a supplier issue a credit note?
A credit note is issued to a customer when:
- The cost of goods or services supplied (or the tax amount levied on them) in the tax invoice is higher than the actual chargeable rate. This allows the supplier to credit the corresponding amount to the client.
- A post-sale discount is offered (after the invoice was issued).
- The customer returns one or more items on the invoice.
Tax Credit Note
In order to be accepted by the FTA, a tax credit note must contain:
- Sufficient information to identify the supply (sales transaction) that the credit note is attached to (like reference numbers).
- The words “Tax Credit Note” clearly displayed on the credit note.
- The name, address, and Tax Registration Number (TRN) of the supplier and the customer (if the customer is also VAT registered).
- The tax credit note’s issue date.
- Details, like the value of supply shown on the Tax Invoice, the correct or amended value of supply, the difference between those two amounts, and the difference in VAT applied to the transaction (in AED).
- A brief explanation of the circumstances that led to this credit note being issued.
Self-issued Credit Note
Credit notes can also be issued by the recipient themselves on behalf of the supplier if:
- “Tax Credit Note created by buyer” is displayed on the self-issued credit note.
- The customer issuing the credit note is VAT-registered.
- The supplier and customer agree, in writing, that the supplier will not issue a credit note for any supply involved in this self-issued credit note.
- It satisfies all the requirements for a normal credit note.
Debit notes are issued to rectify erroneous values recorded in previous invoices. For example, if a product costs AED 450, and it’s invoiced for AED 400, then a debit note of AED 50 is issued by the supplier (or if the VAT amount on the invoice is less than the actual VAT to be paid by the customer). It’s also issued in cases where the vendor has billable expenses that were not added to the invoice that was issued earlier.
Bill of Entry
Bills of entry are used to capture the VAT paid to the customs office while importing goods into the UAE, as the invoice issued by the non GCC vendor will not include VAT. This document will also capture any additional charges and duties borne by the importer, along with the purpose of the import.