Output VAT adjustments

Introduction

In UAE, mandatory VAT registration is required only for those businesses whose value of supplies exceeds AED 375,000 in previous 12 months or anticipated to exceed in next 30 days during the current financial year. For businesses with value of Supplies / Taxable Expenses exceeding AED 187,500 in previous 12 Months or anticipated to exceed in next 30 days during the current financial year, the VAT registration is optional.

In UAE VAT, a special provision is incorporated to handle the output VAT Tax adjustment. The UAE VAT law allows output VAT adjustment if any of the following events occur after the supply of goods and services:

• Cancellation of supply
• Change in tax treatment of supply due to change in nature of supply
• Alteration of consideration paid / payable
• Return of goods / services in full or part
• Error in charging tax on the invoice

On the occurrence of any of the events mentioned above, the output VAT previously calculated requires an adjustment. The Tax adjustment can result in increase or decrease in output VAT. In case, at the time of sale, if the place of supply was identified as inside the State and later, during movement of goods, it was found that the supply would finally be treated as being outside the State, it will not be considered as an error in charging tax in the invoice and output VAT adjustment is not allowed.

For example, on 25th March, 2018, Abdul Traders, located in Dubai, supplied goods to Ali Enterprises for AED 50,000 + VAT AED 2,500. On 5th April, 2018, Ali Enterprises returned goods worth AED 10,000.

In the above case, Abdul Traders should make an output VAT adjustment by recording a credit note for the value of AED 10,000 + VAT AED 500. After adjustment, Abdul Trader’s output VAT liability will be AED 2,000.

To know more on credit note, please read Credit Note: Document for return of goods under VAT in UAE and Tax Credit Note under VAT in UAE.

Conditions for adjusting output tax amount charged in the invoice

The supplier will be allowed to adjust the output VAT on the occurrence of any of the events discussed above, only when any of the following conditions are met:

• Tax charged in the invoice is different from the amount of tax chargeable on the invoice - If the Output Tax amount charged on the supply stated in the Tax Invoice does not match to the Tax that should have actually been charged on the supply as a result of any of the events discussed above.
• VAT Returns are submitted for the period.
  VAT Returns are submitted for the Tax Period during which the supply occurred and an amount was incorrectly calculated as the amount of Output Tax due to the occurrence of any of the events discussed above.

Manner of adjustment

The output VAT adjustment on the instances discussed above should be adjusted in the following manner:

• In case the actual tax due is more than what was previously levied, a new tax invoice for additional amount should be issued during the period when such increase was identified. This will be applicable in all the situations which will lead to increase in output VAT like an escalation of price (an upward revision of price), change in tax treatment (exempt to taxable), error in charging tax in the invoice etc.
• In case the actual tax due is less than what was previously levied, a tax credit note should be issued for the differential amount. This will reduce the output tax of the supplier and input tax of the recipient. For example, the return of goods, cancellation of supply etc.

Related Articles:-

• Credit Note: Document for return of goods under VAT in UAE .
• Tax Credit Note under VAT in UAE.