Tax credit note is a document issued by a taxable person or a registered business in the UAE to its customer. It is issued in case of any reduction in the value of goods or services supplied, or in the amount of tax charged on the original invoice (To read more about Tax invoices in the UAE region, click http://adsauditors.com/tax-invoices-in-the-uae/). It is a credit document that evidences the recipient’s reduction in tax liability.
Tax Credit Note (PART I)
According to the UAE Federal Tax Authority (FTA) Law, tax credit notes should contain the following details:
- On the invoice, the phrase “Tax Credit Note” must be displayed.
- The registrant who made the supply, including their name, address, and tax identification number.
- The recipient’s name, address, and tax identification number if he is a registrant.
- The day the Tax Credit Note was issued.
- The supply value as it appears on the tax invoice, the actual supply value, the difference between the two amounts, and the tax levied in AED that pertains to that discrepancy.
- A brief summary of the events leading to the Tax Credit Note issuance.
- Provide sufficient information to pinpoint the supply the Tax Credit Note refers to.
It is critical to note that tax credit notes can only be issued by a registered taxable person in the UAE. This person is registered with the FTA for VAT purposes. The recipient of tax credit notes must also be a registered taxable person who can claim an input tax credit on the tax amount being credited.
If a tax credit note is issued, the supplier must adjust the original VAT return filed for the corresponding period. This is to reflect a reduction in tax liability. The recipient, on the other hand, can claim an input tax credit on the amount of tax credited in the tax credit note.
Tax Credit Note (PART II)
The Deadline for issuing Tax Credit Notes:
The registrant must issue a tax credit note within 14 calendar days of the day the particular instance occurred. This is if output tax must be reduced after the date of supply because of any of the circumstances listed in Article 61 of the Decree-Law.
For example, on 15 January 2023, a wholesaler of computer hardware delivered 10 laptops to a business for a total consideration of AED 20,000 + VAT. Tax invoices are issued and paid simultaneously. The company returned five defective laptops on January 21, 2023. After checking the claim, the wholesaler refunded 50% of the consideration + VAT on 6 February 2023. The wholesaler has till February 20, 2023 to issue the associated credit note (i.e. within 14 calendar days).
Tax Credit Note (PART III)
If the following criteria are met, a recipient of goods or a recipient of services who agrees to raise tax credit notes on behalf of a registrant supplier in connection with a supply of goods or services will be deemed as having issued the notes:
- A registrant is the recipient of goods or services.
- In accordance with their agreement, the Supplier shall not provide Tax Credit Notes in connection with any supply to which this Clause applies. This is agreed upon by both the Supplier and the Recipient of Goods or Services.
- The Tax Credit Note shall contain the details required by FTA Law
- On the Tax Credit Note, the phrase “Tax Credit Note created by buyer” is prominently displayed.