Businesses around the world require a standardized system to make and record day-to-day transactions. The transaction records play a crucial role while dealing with third-party transactions, various government bodies, accounting and audit departments. In addition, the records are used to analyze the company performance and taxes. Tax invoice is one such record issued to the buyer from the seller at the trade time.
A tax invoice is defined as a request for payment document sent by the registered seller to the purchaser, which shows the total amount of tax payable on the goods to be purchased. The items included in the tax invoice are goods description, trade quantity, the value of goods or services and respective tax amount charged. The tax invoice additionally includes discounts and credits, if any provided by the seller. Tax registered customers need an invoice from the buyer to claim their tax credits for purchases. Tax for any taxable sale Invoices must be processed and issued to the buyer within 14 days of the date of supply of goods and services. The seller can also issue a single tax invoice covering multiple supplies in a single month with goods supplied to the same recipient.
The main difference between a receipt and an invoice is the invoice requests for payment, whereas the receipt is a document that confirms a payment made to finalize any sale. Receipts include a list of sold goods and respective prices, any discounts, applicable taxes, the total amount paid by the buyer and method of payment.
In the UAE, the Tax Invoice is considered a statement that the recipient must account for the tax to the authorities and invoice provided under Article 48 of the VAT Law. Therefore, if Tax Invoices issued to the buyer contain insufficient information, it can invite an Administrative Penalty from the FTA.
Contents of Tax Invoice
The below are standard contents of the invoices issued in the UAE:
- The document is clearly defined with the wording - "Tax Invoice."
- Seller Name, address and contact details
- A sequential Invoice Number or the unique number for future references
- Date of Issue of invoice
- Buyer Name and Address
- Tax Registration Number (TRN) of the Seller and Buyer
- The quantity and volume of traded goods/services
- Unit-wise price
- Discount amount offered
- Tax charges for each item in the invoice
- Total amount payable including taxes
- Contains Payment details that include the Seller account number and modes of payment.
- For invoices relating to a supply of goods under which the buyer accounts for VAT, an apparent reference to the relevant provision of the UAE law is provided.
Types of Invoices
There are two types of invoices used broadly in the UAE:
Simplified Tax Invoice
A simplified tax invoice can be provided when the goods and services sold do not exceed the limit of AED 10,000 for recipients registered under VAT. Buyers can also issue the simplified invoice for buyers not registered under the UAE VAT law. The line items are shown at the gross value in a simplified invoice.
The contents of a simplified tax invoice are:
- The invoice with clearly defined wordings "Tax Invoice".
- Contains the seller’s name, address, and Tax Registration Number (TRN).
- Date of issue
- A detailed description of all goods or services supplied.
- Total gross value with the calculated tax amount charged for the goods involved. A bottom description displaying that 'tax included within the value' is added.
Full Tax Invoice
Full invoices will be mandatorily issued if the value of the goods and services exceeds the threshold value of AED 10,000. The relevant line items are displayed at the net value, and the tax due is calculated and mentioned separately before adding to get the total amount payable.
The contents of a full tax invoice are:
- Contains the buyer Name, address, and TRN.
- A sequential or unique invoice number
- Date of Supply if differing from the date of issue.
- Contains the unit price, quantity/volume, rate of tax, and the payable amount.
- Discount amount, if any.
- Total Payable Tax Amount.
If the prepared tax invoice and the tax chargeable on the supply calculated is a fraction, the corresponding value may be rounded to the nearest number on a mathematical basis. However, if performed, the rounding to the closest number should also be carried on a line-by-line basis as the tax is mentioned and calculated on individual line items.
Advantages of Tax Invoice
The main advantages of the tax invoice are as follows:
- The tax invoices provide excellent transparency for buyers regarding the applicable taxes involved in the transaction.
- Tax invoices support the registered company's claim for any deduction of input tax incurred on the standard rated purchases. The invoices act as evidence to support the party's claim for input tax recovery.
- The invoices identify the details of supplies included in the respective taxable period.
- The tax invoice date at the time of issuing will determine the period of the input tax accounted for.
How Can Jaxa Help?
We at Jaxa Chartered Accountants are experienced financial consultants working for many local and international clients based in the UAE. Our accounting experts work closely with client companies to understand the requirements and assist them in setting up various functions, including bookkeeping, invoice generation, accounting, payroll and vat filing. Please Contact Us with any questions regarding the tax invoices and UAE VAT law. We'd be happy to help!