How to Create a Tax Invoice in UAE: Step By Step Guide

A tax invoice is a key document under the UAE VAT system, issued by registered businesses while supplying taxable goods or services. It serves as legal proof of a transaction and contains essential details like VAT registration numbers, invoice date, description of items, tax rates, and total amount. 

The businesses should adhere to the guidelines set by the Federal Tax Authority (FTA) and issue tax invoices in the required UAE tax invoice format, with all the necessary details. Further, businesses can follow this guide to ensure accurate record maintenance and avoid penalties. 

This guide covers everything that can help businesses understand tax invoices in the UAE, including their purpose, required details, and how to issue them correctly.

What is a Tax Invoice?

A tax invoice is a legal document issued by sellers to buyers when making a taxable supply of goods or services. As per the UAE VAT regulations, there are two types of invoices i.e. full or general tax invoice and simplified invoice. 

Accordingly, as per the UAE VAT regulations, businesses have to mandatorily issue a full/general tax invoice when these two conditions are met: 

1. The recipient is a business registered under VAT, and 
2. The consideration of such a transaction exceeds AED 10,000.

Businesses need to thoroughly comply with the regulations and issue accurate invoices since tax invoices serve as the basis for input tax deductions. 

Moreover, for transactions where the consideration does not exceed AED 10,000, businesses can issue a simplified tax invoice. 

What is a Simplified Tax Invoice? 

A Simplified Tax Invoice is a shorter version of a standard tax invoice, used for transactions below AED 10,000 or when selling to non-business customers. 

Unlike a full tax invoice, it requires fewer details but must include key information such as the seller’s name, VAT number, item or service description, total amount (including VAT), and applicable VAT rate.

The Federal Tax Authority allows simplified invoices for businesses with frequent low-value sales in order to ease their administrative burden. These are mainly used by supermarkets, cafés, and small service providers to ease their compliance with VAT without detailed invoicing.

Importance of Tax Invoice for businesses in the UAE

A tax invoice has a significant role in tax reporting, input tax recovery, and building transparency in transactions. Here is why a tax invoice is important: 

• Issuing tax invoices is a legal requirement for taxable supplies, ensuring businesses operate within regulatory guidelines.
• A tax invoice provides a clear breakdown of the VAT applied, enabling businesses to claim the right amount of tax from clients and remit it to the Federal Tax Authority (FTA).
• It further allows registered businesses to claim input tax credits on their purchases and hence reduces the overall tax burden.
• Proper tax invoices ensure that your financial records are accurate, which will make audits and reporting efficient.
• Clear and precise tax invoices increase confidence between businesses and customers by making prices and taxes transparent.

Mandatory Details To Be Included in a Tax Invoice

The following are the basic requirements laid out by FTA, that a business should ensure to include in all tax invoices format UAE:

• The words "Tax Invoice" must be clearly printed on the document.
• The name, address, and Tax Registration Number (TRN) of the supplier.
• The name, address, and TRN of the recipient if they are VAT-registered. 
• A unique or sequential invoice number that identifies the invoice in the business's record-keeping system. 
• The invoice date and, where different, the supply date as well.
• A description of what is being supplied: goods or services. 
• Unit price, quantity or volume, rate of VAT, and the amount of VAT payable (in AED) for each line item. 
• Highlight if there are any applicable discount rates. 
• The amount due that needs to be paid, in AED.
• VAT amount payable in AED, and the currency exchange rate, if the transaction involves a foreign currency.
• Where the buyer is liable for paying VAT, the invoice has to mention this liability and the concerned law provision on VAT.

Steps to Issue a Tax Invoice in the UAE

Issuing a tax invoice in the UAE involves certain key steps that ensure compliance with all the requirements of VAT. Different from simplified invoices, full tax invoices have more details and would be required for taxable supplies where the value exceeds AED 10,000. Here is how a business can issue a valid tax invoice:

1. Choose an invoicing system:  Use an accounting software, billing platform, or POS system that will provide functionality to create VAT-compliant tax invoices. The invoice can be printed, digital (PDF), or sent via email. 
2. Enter business details: Ensure your system is set up with your registered business name, address, and TRN.
3. Apply the correct VAT codes and rates: Configure VAT rates for standard-rated, zero-rated, and exempt supplies according to the nature of your supplies. 
4. Create the invoice: A tax invoice must include all the mandatory details as discussed above such as a unique sequential number, invoice date, and supply date (if different), etc. The invoice must also clearly state the unit price, applicable VAT rate, total amount (including VAT), and the amount payable.
5. Maintain proper record: Keep copies of all issued invoices for accounting, VAT return filing, and audits. These records will help in the calculation of taxes and, if required in the resolution of discrepancies.

Conclusion 

A tax invoice is an essential legal document in the UAE to ensure that businesses properly report and recover VAT. Where the taxable supply exceeds AED 10,000, any VAT-registered supplier would be required to issue a tax invoice, including details of the supplier's and recipient's TRN, an invoice number, transaction details, and the applicable VAT. 

A tax invoice has to be accurate because mistakes may create a compliance problem and result in penalties. Additionally, proper recording and maintenance of tax invoices help with filing accurate VAT returns and audit procedures. Businesses should adopt reliable invoicing systems to ensure that all tax invoices are compliant with the law, reducing risks and smoothing VAT management.