Requirements of tax invoice: Too simple to get ignored?

Failure to issue correct tax invoices could lead to a penalty of Dh2,500.

Would you accept an invoice which is not titled as ‘Tax Invoice’?, I asked the audience during a tax seminar.

“Absolutely not”, a participant replied confidently.

“Then why not check the other prescribed particulars for a valid tax invoice? The title ‘Tax Invoice’ is only one of such particulars.”, I quipped.

In a document based tax system, such as VAT, it is important for suppliers and recipients to exchange correct tax invoices. Failure to issue correct tax invoices could lead to a penalty of Dh2,500.

Standard-rated supplies exceeding Dh10,000 to VAT-registered customers

We all know that the invoices must be titled as “Tax Invoice”. The invoice should also contain supplier’s and customer’s details. The details should include complete name, mailing address andTRN of each party.

Mere mentioning of the locality or building name is not sufficient for the mailing address. The mailing address should be complete consisting of office number, plot or building name, locality, PO Box number and Emirates. Alternatively, at least the PO Box and corresponding emirate must be mentioned.

Invoice should also contain the invoice number and the date of the invoice. The ‘date of supply’ should also be mentioned if it is different from the invoice date.

The description of the goods or the services supplied should be mentioned along with the corresponding quantity, unit rate, and the pre-VAT price. If the invoice contains more than one-line item of the goods/services, then aforesaid details should be mentioned for each line item of the goods or services respectively.

Common Error

Suppliers often mention the VAT rate and the VAT amount at an aggregate level at the bottom of the invoice. Similarly, the VAT rate is being mentioned as a column heading in the invoice format. Such practices are not in compliance with the VAT laws and FTA guidance.

FTA has specifically clarified that the VAT rate and the corresponding VAT amount should be mentioned against each line item of the goods/services.

The aggregate VAT amount and the aggregate VAT-inclusive gross value of the supply should also be shown on the invoice. Any additional field or information is optional.

Concept of ‘Simplified invoice’

For standard-rated supplies of consideration up to Dh10,000 or for supplies of any value to unregistered customers, a supplier has two options. The supplier can continue to follow a full format invoice discussed above. Alternatively, the supplier can issue a ‘simplified tax invoice’.

A ‘simplified tax invoice’ could contain limited particulars namely, (a) the title ‘Tax Invoice’, (b) supplier’s name, address and TRN, (c) date of issuing the tax invoice, (d) description of each goods/services supplier and corresponding VAT-inclusive value, (e) aggregate VAT amount, (f) aggregate total VAT-inclusive value. It must be noted that FTA has clarified that each line item of goods/services must show VAT-inclusive value. In other words, the pre-VAT value should not be mentioned against each line item of goods/services.

Separate rules have been prescribed for rounding-off and for invoices issued in currencies other than AED.

A question to ponder

“Should I tell you an interesting insight?”, I asked the audience. If a customer questions the supplier for a proper tax invoice, it is often mentioned that no other customer is questioning the invoice format. Or, that the ERP/accounting software allows only a particular invoice format.

“Just imagine the sheer volume of civil disputes between suppliers and recipients if FTA disallows input credits and charge penalties on the recipients for the insufficient particulars on the invoices issued by the suppliers”, I could hear the big gasp amongst the audience, “Who shall bear the responsibility?”.

The writer is the managing director of AskPankaj Tax Consultants. Views expressed are his own and do not reflect the newspaper’s policy.