Tax Credit Note under VAT in UAE
In our previous articles on invoicing under VAT in UAE, we have learnt about Tax Invoice and Simplified Tax Invoice. These are the documents to be issued by registrants when taxable supplies of goods or services are made. In this article, let us learn about another important document to be issued under VAT- Tax Credit Note.
Implication of GCC VAT on invoices
In the VAT regime, all sales and purchase transactions need to be tax compliant. This means that invoices, debit notes, credit notes and other documents have to be printed as per the formats prescribed by the Federal Trade Authority (for UAE) and General Authority of Zakat & Tax (for Saudi Arabia), depending on where your business is located.
What is Tax Credit Note?
A Tax Credit Note is a written or electronic document to be recorded and issued by a registered supplier of goods or services to record the following occurrences:
- a. Supplies are returned or found to be deficient by the recipient
- b. Decrease in value of supply
- c. Decrease in value of tax
Example: On 2nd Feb, '18, Jehan & Co., a registrant in Abu Dhabi, supplies 10 Monitors @ AED 5,000 each, to Noor Electronics, a registrant in Abu Dhabi. VAT charged on the supply is AED 2,500. On the same day, Noor Electronics returns 1 monitor to Jehan & Co., as it was found to be damaged in transit. In this case, Jehan & Co, should issue a credit note to Noor Electronics for the monitor returned and reverse the VAT charged on the monitor. The Tax Credit Note to be issued by Jehan & Co. is shown below.
Tax Credit Note format
A sample format of a Tax Credit Note under VAT in UAE is given below:
Impact of Tax Credit Note
A Tax Credit Note issued by a registered supplier will have 2 impacts:
- 1. Reduction in tax payable by the supplier on the supply
- 2. Reduction in input tax recoverable by the recipient on the supply
Electronic Tax Credit Note
A Taxable Person can issue a Tax Credit Note using electronic means, provided:
- a. The Taxable Person must be capable of securely storing a copy of the electronic Tax Credit Note as per the record keeping requirements
- b. The authenticity of origin and integrity of the content of the electronic Tax Credit Note should be guaranteed.
Hence, persons registered under VAT in UAE should take note of Tax Credit Note, which is the document to be issued in the above mentioned scenarios. Registered suppliers should ensure that Tax Credit Notes issued are complete and contain all the mandatory details required. If the Tax Credit Notes are issued using electronic means, it is important that the required conditions for issue of Electronic Tax Credit Notes are fulfilled. Tax Credit Notes are also of great importance to recipients of supply who are registered, as a Tax Credit Note results in a corresponding reduction in their input tax recoverable on the supply.