The UAE government has taken steps to move towards a fully digitized tax system by adopting E-Invoices. The E-invoicing process will be mandatory for all business to business (B2B) and business to government (B2G) transactions, regardless of the VAT registration status of the entities involved.
E-INVOICING
E-invoice means an electronic invoice that is generated in a particular format, and is directly linked to a central database. The invoice data will be issued and exchanged electronically between a supplier and buyer through an Accredited Service Provider. The UAE government is working towards implementing E-invoicing throughout the country with a view to digitize the invoicing systems and execute real time tax reporting to the UAE Federal Tax Authority (FTA). This process seeks to simplify, standardize and automate the exchange of invoices.
Advantages of adopting E-invoicing
a) The new process is predicted to decrease invoice processing costs by 66%, as seen in other countries that have adopted E invoicing correctly.
b) Due to the validations and controls built within the automation system, this new process will reduce errors and deliver invoices at a much higher pace. This will ensure faster payments and better capital flow to the business.
c) The new system will make it easier to analyse data regarding every aspect of invoicing, which can be used to study and improve flaws in the business plan.
d) Government imposed E-invoicing process will push small businesses in the UAE to adopt and adapt to digitization. They will be able to gain access to the latest technologies, at an affordable price, enabling them to be at a level playing field with larger businesses.
e) The submission of data in near real time with e-invoicing will simplify compliance.
According to the Ministry of Finance, apart from the clear advantages of implementing E-Invoicing, the new process will minimize intentional and unintentional leakages in VAT submission which is an important revenue for the government and which has contributed towards key infrastructure developments in the country.
Federal Decree-Law No. 16/2024
The UAE government amended certain provisions in Federal Decree-Law No. 8/2017 On Value Added Tax, through Federal Decree-Law No. 16/2024, to adapt to the future E-invoicing rollout. The amendment has altered the definition of tax invoice, tax credit note, and non-resident. Certain new words and definitions were added, such as E-Invoicing System, Electronic Invoice, and Electronic Tax Credit Note.
As per the amendment, in addition to the "documentation" and "intention to pay" conditions, a new condition has been incorporated for the purpose of input VAT recovery. Here, the taxable person is required to retain the tax invoice in accordance with the e-invoicing system when it is required to be issued or is issued in electronic format.
Additionally, the newly added articles 65 and 70 states that a taxable person who is subject to the e-invoicing system should issue an electronic tax invoice or an electronic tax credit note, as the case may be.
The DCTCE E-Invoicing Model
UAE has adopted a decentralized 5 corner E-invoicing model. The Decentralized Continuous Transaction Control and Exchange (DCTCE) model uses the Peppol AS4 protocol. Below is a step-by-step process in the E-Invoicing model involving a supplier, buyer, accredited service provider and the Federal Tax Authority:
- The Supplier (C1) sends the E-Invoice data to the Accredited Service Provider (C2). Unstructured invoice formats such as pdf, word document, images, scanned copies and emails are not e invoices. E-invoices must be in xml format.
- C2 validates the E-invoice data, and transmits it to the buyer’s accredited service provider (C3). If the invoice data is not in the standardized xml format, C2 converts the data into the said format before sending the same to C3.
- C3 sends an acknowledgment to C2 regarding the receipt of the invoice and transmits the E-invoice to the Buyer (C4).
- C2 reports the data in the invoice to the central data platform managed by the FTA (C5).
- C5 sends an acknowledgment to C2 regarding the receipt of the invoice data
- C2 forwards the acknowledgment by C5 and C3 to C1.
The Ministry of Finance has updated all the information regarding the E-invoicing rollout planned for 2025, in its website, through a designated page. The E-Invoicing process will improve efficiency, transparency and accessibility, allowing UAE businesses to engage seamlessly with the data generated by the system.