As in many other countries, in the UAE there is a Value Added Tax (VAT) charge on most goods and services provided and once your business has exceeded the mandatory registration threshold of AED 375,000 you are required to register for VAT. Thus you become what is referred to as a registrant and now you have a few more obligations as a business to comply with the Federal Tax Authority (FTA). Whether registered for tax or not businesses should hold certain documents such as balance sheets and keep records of things such as inventory. Once you are a registrant there are a few more things you are required to keep track of, notably, the output tax due on taxable supplies and input tax recoverable. The document that is most helpful in making sure you have these things on record is the Tax invoice.
But what exactly is a tax invoice?
A tax invoice is the document that is sent from the supplier to a customer when a taxable supply of goods and services is made. It is a list of everything that was supplied and it specifies the taxes that were applied to these items. Most goods are charged with the standard UAE VAT (5%) however there are certain exceptions such as the export of goods and services that are Zero rated (0%) and a few items that are exempt from tax such as local passenger transport and certain financial services.
There are however many different kinds of invoices such as a proforma invoice, so can you use that to keep record instead of a tax invoice? The short answer is no as a proforma invoice is simply a list of the goods and services that will be provided to the customer so that they are aware of the price that they will need to pay for these items. A tax invoice should be and is usually sent once the product has been received by the customer or the service has been completed and it is therefore a demand for payment along with the relevant VAT charges. It is important to note that in the UAE, according to Article 67 of the Decree Law, “The time limit for the issuance of a valid tax invoice is 14 days from the date of supply” thus in case you forgot to issue the invoice, you have 14 days to do so. You may issue an electronic tax invoice under the conditions that the taxable person is able to securely store a copy of the electronic tax invoice and that the authenticity of origin and integrity of the content can be guaranteed or you will be fined.
Another type of invoice is the Simplified tax invoice which is basically exactly what the name states, it is a simplified version of a tax invoice with less information and details. Due to the brief and concise format of a simplified invoice it may only be issued under the conditions that:
a) the recipient is not registered for VAT,
b) the recipient is registered for VAT but the supply does not exceed AED 10,000.
Below is a summary of what you need to know about the tax invoices:
*It is important to note that all amounts written on the invoice should be in the local currency Dirhams (AED). If there are amounts in a foreign currency, in addition to those amounts shown, the exchange rate as well as the tax amount must be stated in AED.
So now that you know what a tax invoice is and what it looks like, why are these documents so important?
As any registrant is aware you are allocated a tax period by the FTA which is generally a three month period (quarterly), however a longer (biannually) or shorter (monthly) period of time may be allocated if it is deemed necessary. You are required to submit your tax returns no later than the 28th day from the end of each tax period. This is where the tax invoices come in handy as they are an easy way of knowing exactly which transactions fall within your allocated tax period, keeping you from making mistakes and potentially being heavily fined by the FTA!
As mentioned before you can also be fined if you do not comply with certain rules hence keeping your tax invoices in the correct format and ensuring they are properly recorded is crucial. Some of theses fines include:
In addition to these fines there are other fines that can incur should you not have your tax invoices properly recorded when you are submitting tax returns. Thus, in conclusion, tax invoices are very important little documents that can keep your business out of trouble and help you keep a record of almost all transactions in the business. If you would like to know more about tax invoices and VAT in general the following document from FTA provides all additional information you may need.
By working with our Bespoke Accounting team you can save both time and money while having the reassurance and peace of mind that you’re making sound business decisions for your future.
Whether you need help with VAT filing, monthly bookkeeping or budgets and strategies for your business, get in touch with us to see how we can help you grow your business. Have a look at how we have been helping our clients. If you have any questions, simply book your free 30 minute consultation.
Image from FreshBooks.
