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Tax Credit Note under VAT in UAE

A Tax Credit Note under VAT is an instrument in the United Arab Emirates that acknowledges the payment of value-added tax on goods or services. It records the sale and can be used to calculate future VAT liabilities.

According to UAE VAT Law, a tax registrant must issue a Tax Credit Note when an Output Tax reduction occurs in connection with any supply made by the registrant and provide it to the recipient of goods or services. A tax credit note is a written or electronic document that must be recorded and issued by a registered supplier of goods or services under the conditions specified in the UAE VAT Decree-Law and its implementing rules. The latest revisions to the UAE VAT Law, on the other hand, have introduced certain adjustments to the provisions for issuing a tax credit note in the UAE.

New Changes to VAT Law regarding Tax Credit Notes in the UAE

The UAE Federal Tax Authority (FTA) recently announced revisions to the VAT law pertaining to tax credit notes. It is critical for firms to be aware of these new changes in order to comply with these new requirements. Businesses no longer need to reveal all of the facts of the original transaction before issuing a tax credit note, according to the new legislation.

Furthermore, businesses can now revoke a tax credit note at any moment. This should be done before submitting their VAT return filing to avoid any discrepancies with the tax authority’s data. Additionally, in the business’s book of accounts or electronic records, any canceled tax credit notes must be explicitly identified and mentioned.

Businesses operating in the UAE must thoroughly comprehend and comply with these new regulations surrounding tax credit notes, as failing to do so might result in hefty financial penalties. As a result, it is recommended that companies examine and adapt their existing policies and procedures as needed.

What are the conditions on the New Change in the UAE VAT Law about Tax Credit Notes?

The UAE has amended Article 62 (2) of the VAT Code to require that if the VAT calculated on a supply exceeds the amount that should have been charged, a tax credit note be issued within 14 days of the occurrence of any of the following:

  • There was a supply cancellation.
  • The VAT treatment of the supply has changed due to a change in the nature of the supply.
  • The previously agreed-upon supply consideration has been modified.
  • The recipient returned the products or services and received a refund; or
  • If VAT was incorrectly charged or an inappropriate tax treatment was applied (You should note that the requirement to issue a tax credit note where there is an incorrect tax treatment is a new addition in the amended UAE VAT Law)

What would be the Impact of the New Amendment?

In the UAE, the time limit of 14 days for issuing a tax credit note is a new addition to the VAT Legislation. In accordance with this modification, firms must ensure that they have adequate processes in place to appropriately identify circumstances when a tax credit note is required. You must also update your systems to ensure that if an improper tax treatment was used (for example, applying a standard VAT rate wrongly), a tax credit note is sent. Tax advisors in Dubai can assist you in determining the impact of the latest revisions on your organization.

When did the New Amendment take effect?

The new UAE VAT Law revisions went into effect on January 1, 2023. This means that enterprises must ensure complete compliance with the modifications right away. Using the best VAT consultation services in Dubai helps keep you from making compliance mistakes.

What details need to be included in a Tax Credit Note?

A Tax Credit Note must include specific mandatory information, according to the executive regulations of the UAE VAT Law. VAT advisors in Dubai can assist you in removing ambiguities about the facts to be included in a tax credit note. In the UAE, a tax credit note must have the following information:

  • “Tax Credit Notice” is clearly displayed.
  • The Registrant making the supply’s name, address, and Tax Registration Number (TRN).
  • Where the recipient is a registrant, the recipient’s name, address, and TRN.
  • The date on which the Tax Credit Note was issued.
  • The supply value stated on the Tax Invoice, the proper amount of the same.
  • The value of the supply, the difference between those two numbers, and the AED tax levied on the difference.
  • A brief explanation of the circumstances that led to the Tax Credit Note’s issuance Information sufficient to identify the supplier to which the Tax Credit Note pertains.

This article was published on  17 March 2023

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