e-Invoicing errors can be a tricky, expensive affair. Wrong, incomplete or late invoices can cause rejections, financial penalties, and VAT reporting delays. For businesses that deal with a large number of invoices it can be a time consuming process to rectify incorrect invoices rejected by FTA. To avoid e-Invoicing errors, it is necessary to know the common mistakes that businesses may commit while generating invoices under the new UAE e-Invoicing system.
Common mistakes to avoid while e-invoicing
Strong compliance mechanisms all begin with one simple rule of thumb - all invoices that are submitted need to be correct the first time it encounters the tax network.
1. Missing or invalid Tax Registration Numbers
Providing incorrect, invalid or missing Tax Registration Numbers (TRNs) is one of the most common mistakes made while e-invoicing in UAE. Sometimes, there are invoices that are issued to customers with missing digits from the TRN, or on the other hand, there are other mismatched buyer details. Now, tax systems that will be built for UAE e-invoicing will automatically check if the TRNs provided are a match against the TRNs in the national VAT registry. Whenever a mismatch occurs, the invoice fails compliance checks in the background, even though it may reach the intended customer. This creates a bevvy of problems:
- VAT recovery for the buyer/customer becomes blocked
- The seller appears non-compliant due to the mismatch
- The invoice does not end up qualifying as a legal tax document
When errors of this kind are caused repeatedly, FTA reviews are often triggered.
2. The wrong base is used to calculate tax
Finance teams in many companies make the mistake of assuming that if VAT has been applied, compliance is complete. Invoices under the new UAE e-Invoicing system requires a lot more care and attention. The VAT must be made out based on the accurate taxable value; it must exclude non-taxable items, discounts, or transportation charges wherever applicable. There are many systems in the market that do not apply tax logic, but instead apply the VAT to the gross total (instead of applying the VAT to taxable totals). The difference in the amount billed looks minor on a single invoice, but can add up to a significant number over hundreds of invoice transactions. Automatic reconciliations can quickly detect errors like these on the FTA’s end.
3. Incorrect invoice type code used
Under UAE VAT regulations, businesses must issue the correct type of tax invoice depending on the nature and value of the transaction. A full tax invoice is generally required for B2B transactions, while a simplified tax invoice may be issued for B2C transactions where the value does not exceed AED 10,000.
A common mistake occurs when businesses issue simplified tax invoices for transactions that legally require a full tax invoice, particularly in B2B dealings. Conversely, some businesses issue full tax invoices for small retail transactions where a simplified invoice would be appropriate.
Using the incorrect invoice format can result in non-compliance, especially during audits, even if the VAT amount itself is calculated correctly. It is therefore important to ensure that the invoice type aligns with the transaction type and value as prescribed under UAE VAT regulations.
4. Supply date and invoice date conflicts
Under e-invoicing in the UAE, there is a clear difference between the invoice date and the tax point date. Both of these fields must follow different, specific rules. Many ERP systems wrongly assume that both these dates are the same and set the same date for both these fields. This becomes a problem because the goods may be supplied on one date and invoiced on another later date. According to the new VAT laws, the tax point has to reflect the date of supply, not the date of billing. When the dates are incorrect, VAT reporting gets distorted and reconciliation gaps are created between tax submissions and sales ledgers.
5. Duplicate invoice numbers
Invoice numbers are also an integral part of the e-invoicing system of the FTA in the UAE. The invoice numbers submitted to the tax system need to be compliant. Missing numbers or duplicate invoice numbers are marked as red flags. There are many cases when duplicate invoice numbers are generated - such as when doing a manual override, when the ERP has a bug, or when multiple billing systems are being used. These kinds of errors are detected by the tax system instantly and flagged as non-compliant. These kinds of issues can raise important audit concerns for the FTA because they suggest hidden revenues or manipulation in reporting.
6. Wrongly structured invoice formats
PDF invoices, image invoices and emailed invoices are no longer considered as competent e-invoices under the new scheme. Now, invoices will have to be in a structured electronic format that can be consumed, read and validated by the tax systems of the FTA. The fields are all thus required to be machine-readable, and fields like supplier ID, the TRN of the buyer, tax category, VAT amount, and line item details all need to be present in the invoice. If you use visually correct invoices that are technically invalid, then it may lead to non-compliance that is tracked during the audit stage.
7. Mandatory fields of the invoice are missing
There are a number of data points that need to be added to each invoice according to the new regulations by the UAE FTA. Wrong country codes, missing customer addresses, and incomplete VAT fields make the invoices non-compliant. Most of the ERPs in the UAE market have been designed mainly for commercial billing and not from the perspective of tax compliance. Unless the ERPs are configured properly, some mandatory fields end up remaining unfilled, inconsistent or empty. The FTA’s tax systems flag these invoices as non-compliant immediately.
8. Late submission of invoices to the tax platform
Many companies make the mistake of generating invoices internally and uploading them to the tax system later. This is a grave error. e-Invoicing in the UAE requires almost real-time submission of invoices. The problem with the late submission of invoices is that it breaks audit trails and creates a mismatch between seller and buyer records. The FTA now expects invoice data to flow as transactions occur, rather than days later.
How to prepare for error-free uae e-invoicing
As the UAE moves toward structured and real-time e-invoicing compliance, businesses must proactively take steps to adopt the new system into practice.
- Understand the UAE e-Invoicing process and the data requirements involved.
- Select an Accredited Service Provider (ASP) and sign a contract.
- Work with the ASP to implement e-invoicing within your systems.
- Conduct testing for invoice creation, validation, and submission to ensure compliance.
- Enable automated invoice exchange between supplier and buyer, with tax data reported directly to the FTA.
Leverage e-Invoicing to streamline business processes and reduce invoice processing costs.e-Invoicing regulations by the FTA are now at the core focus of every VAT, reporting and audit process. e-Invoicing in the UAE should be treated as a controlled financial system rather than a billing tool, and this gives the desired results.
