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In business, return of goods by customers is common. The return of goods can be of the entire quantity supplied or of a partial quantity. This could be due to various circumstances, such as goods being damaged during transit, goods not received as per the specification, etc.
With the introduction of VAT in UAE, the tax aspect on the goods supplied and returned also comes into play. When the goods are sold, VAT is charged at the standard rate. When the goods sold are returned by the recipient partially/fully, the VAT charged on the goods returned has to be reversed. The document to be issued by a supplier when goods sold are returned by a customer, is called Tax Credit Note. A Tax Credit Note serves the purpose of reducing the tax payable to the FTA by the supplier on the supply by as well as reducing the input tax eligible to be recovered by the recipient on the supply. Let us understand how a supplier can issue a Tax Credit Note for return of goods by customers.
Example: Ali Automobiles, a registrant in Dubai, supplies 10 cars @ AED 50,000 each to Fatima Transports, a registrant in Ajman. VAT @ 5%, amounting to AED 25,000 has been charged on the supply. Out of the cars supplied, Fatima Transports returns 2 cars as they are damaged during the transportation. The Tax Credit Note to be issued by Ali Automobiles for return of 2 cars by Fatima Transports appears as shown below:
A Tax Credit Note is an important document under VAT in UAE. The VAT Law has laid down the details that are mandatorily required in a Tax Credit Note. Registered businesses should ensure that these details are given in every Tax Credit Note issued.
Let us now answer some FAQs that businesses have, with respect to Tax Credit Note.
Answer: Yes, a Tax Credit Note should provide the details of the Tax Invoice, i.e. the supply to which it relates. In the above Tax Invoice, the ‘Buyer’s Ref’ field shows the details of the Tax Invoice to which the Tax Credit Note relates.
Answer: No, no time limit has been laid down for issue of a Tax Credit Note for a supply.
Answer: Yes, a Tax Credit Note should contain a brief explanation of the circumstances leading to the issue of the Tax Credit Note.