UAE Tax Credit Note Guide

In the course of business, situations may arise where the goods or services you’ve supplied don’t meet your customer’s expectations. A customer might over-order and return part of their purchase. Or if you are in the service industry, you may sometimes need to deal with service cancellations. At times, you may simply issue a wrong invoice.

In all these cases, an adjustment to the original tax invoice becomes necessary.

However, if the necessary correction reduces the tax value or output VAT, the supplier will generally need to issue a tax credit note rather than simply replacing the original invoice. If the correction increases the output VAT, the supplier must generally issue a new or additional tax invoice.

This article explains what a tax credit note is, the correct format to use, its impact on your VAT returns, and how to prepare one in line with UAE VAT regulations.

What Is a Tax Credit Note in the UAE?

In the UAE, as per Federal Decree-Law No. 8 of 2017, suppliers must issue tax credit notes to inform the recipients of reductions in the VAT due on a particular supply. The UAE VAT law defines a tax credit note as a written or electronic document that records the key details regarding a reduction or cancellation of a supply.

When the value of supplies changes, the VAT payable also changes. Similarly, if a supply is invoiced as a standard-rated supply, but it turns out to be exempt or zero-rated as the project progresses, once again, the output tax for the supplier and the input tax for the recipient will change. A tax credit note is a formal document issued to communicate any such changes that lead to a reduction or adjustment of the total VAT liabilities.

Essentially, you will need to issue tax credit notes when:

1. The supply is cancelled
2. The tax treatment changes because the nature of the supply changes
3. The previously agreed consideration is reduced
4. Goods or services are returned in full or in part, and the consideration is refunded accordingly
5. VAT was charged or applied incorrectly, and the correct output VAT is lower

So, a tax credit note can be seen as a negative invoice since it reduces the value of the original invoice.

Tax Credit Note vs Tax Invoice vs Debit Note

A tax invoice is the original document demanding payment for the supplies, and it contains the original tax obligations. Businesses should usually not delete or replace the original invoice once issued; they should preserve the audit trail and issue the correct adjustment document. Any changes in the value or nature of the supplies that also lead to a change in tax obligations must be communicated via tax credit notes and additional tax invoices. In the UAE context, the additional invoice takes the place of a debit note.

Credit Note vs Debit Note

A tax credit note is the formal VAT document issued when the correct VAT is lower than the amount previously charged. If the correct VAT is higher than the amount originally calculated, the supplier must generally issue a new or additional tax invoice. A debit note may be used as a commercial document, but it does not replace the VAT requirement to issue a proper tax invoice.

If the VAT charged in the previously issued tax invoice was lower than the actual VAT, you need to raise an additional tax invoice for the additional tax amount instead of issuing tax credit notes.

Then, the output tax for the supplier and the input tax for the recipient will increase in the period in which the mistake was recognized and the additional tax invoice was issued.

When Must a UAE Business Issue a Tax Credit Note?

Under the VAT law, UAE businesses must issue tax credit notes if the value of the invoiced supplies decreases or the applicable VAT decreases due to changes in the VAT treatment of the invoiced supplies. A tax credit note informs the recipient of the reductions in invoice value and VAT amount.

Deadline for Issuing Tax Credit Notes – The 14-Day Rule

When the UAE VAT law was amended through the Federal Decree-Law No. 18 of 2022, the 14-day deadline for issuing a tax credit note was introduced. So, tax credit notes must be issued within 14 calendar days from the date the relevant Article 61 event occurs for the invoiced supplies.

For instance, suppose you own a real estate business and, on 31 May 2026, make a sale of AED 1 million for an office building.

On this sale, you charged a 5% VAT of AED 50,000.

However, before you can begin development or even start procurement of building materials, on 14 June 2026, the client changes the order. Instead of buying an office building, the client now only wants to receive the bare land, which is priced at AED 500,000.

As a result, two changes must be communicated. Firstly, the invoice amount must be reduced to AED 500,000. Secondly, the supply is now VAT-exempt and not standard-rated. Bare land is exempt from UAE VAT. This supply carries no VAT, unlike commercial buildings, which are standard-rated supplies with a 5% VAT rate.

These changes must be communicated through a tax credit note no later than 28 June 2026, which is the 14th day after the day on which the client changed the order. This tax credit note reverses the AED 50,000 VAT charged in the original tax invoice.

If the tax credit note is not issued within this deadline, you will have to pay AED 2,500 in fines to the Federal Tax Authority (FTA).

UAE VAT Law Compliant Tax Credit Note Format

In this section, we will go over how businesses can issue UAE VAT law-compliant tax credit notes. The key requirements of tax credit notes are laid out in the Executive Regulation of the Federal Decree-Law No. 8 of 2017 on Value Added Tax. To begin with, the document should clearly show the words “Tax Credit Note”. Other required fields of a tax credit note specified under Article 60 of this regulation are:

1. Names and addresses of the supplier and the recipient
2. Tax registration numbers (TRNs) of the supplier and the recipient (if the recipient is registered)
3. Issue date
4. Original and correct values of supply, as well as the difference between the two
5. VAT relating to the difference (stated in AED)
6. Brief reason for issuing the tax credit note
7. Sufficient information to identify the original supply

UAE Tax Credit Note Sample

Here’s a tax credit note sample.

Download Template for Tax Credit Note

Is issuing tax invoices another one of your billing pain points? In a previous article, we provided templates for VAT-compliant tax invoices.

How Tax Credit Notes Affect Your VAT Returns

A tax credit note decreases the VAT amount on a previously issued invoice, and as a result, it impacts the VAT returns of the supplier as well as the recipient. From a supplier’s perspective, a tax credit note will reduce the output VAT. On the other hand, the same tax credit note will reduce the input VAT for the recipient.

The supplier must make the appropriate VAT adjustments in the relevant VAT return in accordance with the output-tax adjustment rules. The recipient, on the other hand, must record and report the input VAT reduction in the period in which the credit note is received.

Credit Note vs Bad-Debt Relief

Businesses must issue tax credit notes when the VAT component of an invoice changes due to changes in the nature of supply or reductions in the value of supply. However, you must not assume that all reductions in invoice value trigger a tax credit note. Writing off an invoice, partially or fully, as a bad debt does not change the original value or nature of the supply in the same way as a cancellation, return, or price reduction.

However, bad debt adjustments must be recorded in a different manner.

As a supplier, you can reduce the output VAT in the current period to adjust the VAT paid in any previous tax periods if:

1. The goods or services were supplied
2. VAT was charged and paid
3. Invoice amount is written off (partially or fully)
4. More than 6 months have passed since the date of supply
5. The recipient has been notified of the amount that has been written off

On the other hand, the recipient must reduce the input VAT claimed for the current period to adjust the VAT claimed in any previous tax periods if:

1. The supplier has reduced the output VAT and notified the recipient of the amount that has been written off as a bad debt
2. The recipient has received the goods or services
3. Input VAT was claimed
4. The consideration was not paid (fully or partially) for over 6 months

E-Invoicing & Electronic Tax Credit Notes (2026)

In the UAE, the e-invoicing regime was introduced through the Federal Decree-Law No. 16 of 2024 and, later, through Ministerial Decisions No. 243 and 244 of 2025; an operational framework for the same was introduced.

The UAE e-invoicing system is being introduced in phases. Businesses with annual revenue of AED 50 million or more must implement the system from 1 January 2027, while businesses below that threshold must generally implement it from 1 July 2027. Any government entities that fall within the scope of the e-invoicing laws must follow suit from 1 October 2027. The framework generally applies to B2B and B2G transactions conducted by persons doing business in the UAE, subject to specific exclusions.

Under the e-invoicing regime, businesses must appoint an accredited service provider (ASP) and issue electronic tax invoices and electronic tax credit notes in the standardized PINT AE format.

While e-invoicing is a regulatory requirement, you may not necessarily find it burdensome. Since the UAE’s VAT system forces businesses to digitize invoices and credit notes, it improves data integrity by enabling digital reconciliation in your accounting systems.

Not sure if your business currently falls under the scope of e-invoicing regulations? We cover all such queries in our guide on e-invoicing.

Federal Tax Authority Penalties for Missing or Incorrect Credit Notes

Through Cabinet Decision No. 40 of 2017, the UAE government introduced two penalties with respect to electronic tax credit notes. Firstly, if you do not issue an electronic tax credit note or the permitted alternative document within the legally specified period when the situation calls for it, you must pay a penalty of AED 2,500 for each detected case to the Federal Tax Authority (FTA). Secondly, if you do not issue an electronic tax credit note or a tax invoice as per the stipulated conditions and procedures, you must pay a penalty of AED 2,500 for each detected case to the FTA.

Conclusion

Tax credit notes are a legal requirement that ensures accurate records. Whether you are dealing with returned goods, cancelled services, or a change in VAT treatment, getting the format right and meeting the 14-day deadline is essential to avoid penalties.

Tax credit notes, however, are just one piece of the broader recordkeeping puzzle. UAE businesses must also correctly apply and record import-related taxes, follow the arm’s length principle for related-party transactions, and prepare audited financial statements, among other things.

Recordkeeping and accounting obligations pulling focus away from your core business? Consider Skrooge’s Accounting & Tax Package, which combines AI-powered automation with the oversight of experienced accountants.

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