The United Arab Emirates (UAE) has made yet another landmark move in the continuous process of economic reforms aimed at ensuring more efficient tax collection & compliance by systematically revising tax laws and introducing an e-invoicing system. This move reflects the UAE government’s wider strategy of digitizing the economy and making business procedures easier. This will make tax reporting easier, facilitate smoother business deals, and ensure better efficiency.
What is an E-Invoicing?
As Per the UAE Ministry of Finance, “e-Invoicing is a structured form of invoice data that is issued and exchanged electronically between a supplier and a buyer and reported electronically to the UAE Federal Tax Authority”. It is important to note that unstructured invoice formats such as PDF, word documents, images, scanned copies, and emails are not eInvoices.
How the UAE eInvoicing System Works: A Decentralized, Five-Corner Model
The UAE e-Invoicing model is based on a five-corner model that will allow:
- Sellers and buyers to exchange invoices via Accredited Service Providers (ASPs).
- ASPs transmit the tax invoice data to the Federal Tax Authority (FTA) for record-keeping and compliance.
This model is decentralized, increasing the reliability and flexibility of the invoicing process. Based on the OpenPeppol standard, the system aligns with international e-invoicing practices, making it compatible for businesses involved in cross-border transactions.
Key Legislative Updates on Tax Procedures and e-Invoicing
Two critical legislative updates, Federal Decree-Law No. 17 of 2024 on tax procedures and Federal Decree-Law No. 16 of 2024 on VAT amendments, lay the foundation for a comprehensive e- Invoicing framework. These updates amend provisions of Federal Decree-Law No. 28 of 2022 and Federal Decree-Law No. 8 of 2017 respectively, aligning the UAE’s tax infrastructure with international best practices in digital tax compliance.
- Overview of Federal Decree-Law No. 17 of 2024:
Federal Decree-Law No. 17 of 2024 provides the necessary definitions and empowers the Ministry of Finance (MoF) to implement the eInvoicing system by laying down certain guidelines for businesses. The law covers the establishment of the legal framework of electronic invoicing, stating therein that the Minister of Finance shall issue further decisions regarding the effective dates of eInvoicing, the conditions thereof, and entities subject to it.
- Federal Decree-Law No. 16 of 2024: Amendments to the Value-Added Tax (VAT)
The VAT-specific decree introduces wider definitions of tax invoice and tax credit note, inclusive of electronic formats. By incorporating these electronic definitions, the government of the UAE aims at making the VAT refund process easier and less time-consuming, especially for those businesses that will be able to align themselves with the new requirements concerning e-Invoicing. This change is expected to reduce administrative burdens, minimize errors, and improve data accuracy. Since VAT refunds will depend on compliance with e-Invoicing, businesses will have to keep their electronic invoices very carefully.
Benefits of the UAE e-Invoicing System
The advantages of this system in terms of efficiency in tax reporting are huge, including its contribution to transparency to the relevant government authorities. In detail, businesses, government entities, and consumers will gain in several ways:
| Stakeholder | Benefits of eInvoicing |
| Businesses | Reduced administrative costs, faster invoicing, enhanced accuracy, and simplified VAT compliance. |
| Government Entities | Real-time tax data collection, improved tax compliance, enhanced economic transparency. |
| Consumers | Increased confidence in business operations and transaction transparency. |
Advantages for Businesses
The e-Invoicing system brings several operational efficiencies for UAE businesses, which involve, among others:
- Better Cash Flow: Invoices are exchanged immediately; hence, it offers faster processing of invoices and a healthier cash flow cycle.
- Less administration: E-invoices reduce paperwork and manual entry of data, thus minimizing human errors.
- Increased Compliance: With the FTA having direct access to invoice data, timely and more accurate tax filings are much easier to ensure; this further reduces the risk of penalties.
- Better Recordkeeping: The requirements for digital archiving make it easy for businesses to access historical data in cases of audits or financial reviews.
Phased Roll-Out Strategy for e-invoicing
The Ministry of Finance has laid down that the implementation of an e-invoicing system shall be in phases. This will give ample time for business enterprises to get used to the new system in a gradual manner so that the transition is smooth and without much disruption. Although the dates and specific requirements of the different phases are yet to be announced, it is expected that on their own, businesses can start getting ready by adopting digital invoicing systems and commensurate training of personnel for compliance with e-Invoicing. The MoF will continue to engage and collaborate with the stakeholders, while clearly outlining timelines and regulatory guidance for proper implementation.
UAE e-Invoicing Compliance Requirements
The businesses falling under the ambit of the e-Invoicing system should do the following under the new laws:
- Electronic issuance of invoices and credit notes: Paper-based invoices will not be acceptable under the new regulations for entities falling under e-Invoicing.
- Invoices need to be stored in an electronic manner: Invoices should be maintained in an electronic mode by the business that would show record-keeping as prescribed by the FTA.
- Accredited Service Providers: These ASPs will facilitate the interchange of invoices between buyers and sellers, making the flow of data possible to FTA.
The adoption of ASPs is highly crucial with regard to sustaining business under compliance. Besides this, the ASPs make the process of invoicing so easy that they also provide a safety channel regarding the exchange of data in respect of taxation, mitigating all risks involved with the handling of paper invoices.
Key Compliance Milestones for Businesses
| Milestone | Description |
| Digital Invoice Generation | Businesses need to adopt e-Invoicing solutions to generate invoices digitally. |
| ASPs Adoption | Engage with Accredited Service Providers for secure data exchange. |
| Record-Keeping Compliance | Archive all invoices electronically, adhering to FTA’s guidelines. |
The FTA has also indicated that e-Invoicing compliance will become an essential aspect of VAT refunds, emphasizing the importance of prompt and accurate adoption by businesses.
How Businesses Can Prepare for e-Invoicing in the UAE
To comply with the requirements of e-Invoicing, the business should:
- Upgrade the Prevailing System: Adopt an ERP or accounting software that is compatible with e-invoicing standards.
- Select an Accredited Service Provider: A business should get a partner with a certified ASP for the smooth processing of e-Invoicing.
- Employee Training: Imparting relevant training to employees on compliance issues related to e-invoicing and the procedure involved in digital invoicing.
- Make an Internal Compliance Check: Organize regular internal audits to confirm whether your company’s process on e-invoicing has been in compliance with FTA regulations.
Following such steps facilitates the smooth transition of businesses towards e-invoicing, avoiding compliance risks while bringing out the real benefits from such digital systems for them.
How HHS Lawyers Can Assist You with UAE’s e-Invoicing Compliance
The new UAE tax laws and requirements of e-invoicing are indeed complex to navigate. HHS Lawyers provides expert legal advice to your business through these regulatory changes. Be it establishing compliant invoicing systems, liaising with the ASPs, or the record-keeping practices as per FTA standards, our team can guide you at every step. Let HHS Lawyers smoothen your compliance journey and keep your business ahead in the race of a digitally growing economy.
To find out more about our tax compliance support services, please get in touch with HHS Lawyers today.
