Time for UAE companies to start preparing for VAT e-invoicing

Most of my articles tend to end with a call to action such as “prepare yourself” or “avoid the penalties”, but that is not the case today.

That's because it is not entirely clear what the requirements will be for the introduction of e-invoicing. The one thing that is certain is the date when this change affecting your business will take effect: July 1, 2026.

It looks like it will have a phased introduction. I have heard that there might be four phases, but we do not have clarity on the details yet.

Do VAT-registered businesses volunteer for a phase or are they randomly assigned? We know that you can volunteer, but can you do so for a specific phase? Larger companies are likely to be going first. I will detail one particular challenge facing them later.

All registered businesses will ultimately need to use this system to raise any tax invoice on another UAE VAT-registered entity.

The Federal Tax Authority (FTA) will license a number of accredited service providers for e-invoicing. Your business will map its accounting software to these midway platforms which then complete three tasks.

They take the issuing party’s invoice, validate the information according to the regulations and pass it on to the receiving party. Simultaneously, they inform the FTA, which records the sale and purchase against both businesses' VAT accounts. This should all happen instantly.

Given there will be multiple providers, will the management of data traffic be averaged out across them? Or will a user sign up to only one?

A solution such as this must operate on an ongoing basis, and continue to be scalable and open to enhancement. The crucial question then is: who is paying for this? Will businesses pay a flat fee per document or a subscription?

When I worked on an automated invoicing project in the UK two decades ago, users were charged Dh2.50 per invoice raised, to cover the development and running costs. As this was less than the conventional cost of sending an invoice, it represented a saving.

Given the compounding reduction of costs associated with evolving generations of technology, have such costs become relatively fractional? You, as a business owner, do not serve your customers for nothing. Why should this be free? And, if there is a fee, who would be invoicing it?

At a minimum, all the requisite information of a tax invoice must be uploaded. This has about 13 aspects. Each business will need to map its accounting software to the accredited service provider.

Let's assume the mapping principles will remain the same for all providers. The underlying technology is called Peppol. One of the objectives is that the UAE should be able to mirror their data to other countries using the same underlying technological solution.

I mentioned large entity issues earlier. Here is an example: a company is invoicing for incidental travel costs relating to services delivered. If it is within the UAE, it will attract 5 per cent VAT. If it is abroad, then it is 0 per cent. Given the GCC VAT framework law, it would be best to have two categories, one also covering non-Gulf. Therefore, there are three potential VAT codes.

Do we now need three chargeable travel codes, one for each VAT treatment, so it can be mapped?

Large businesses sometimes operate multiple accounting software solutions. As you can see from my example above, the amount of systems work required is likely to be substantial.

As a project, the correct resources need to be identified and time assigned – with only 10 months to go. The amount of preparation required will probably be similar to that needed for VAT's launch in 2017.