I run a B2B marketing consultancy and have always invoiced my UAE customers in US dollars rather than dirhams. Is this allowed under the new VAT laws and what details exactly should my invoices include? GH, Dubai
Firstly you must prominently show the words “Tax Invoice”, rather than just "Invoice". You need to include your own company name, registered address and Tax Registration Number (TRN). In addition you need your customer's company name, address and TRN.
If they are not registered for GCC VAT, then you do not need to include their TRN. However if they are registered and you do not include it, they may not be able to reclaim the VAT you have charged them. Similarly don’t accept an invoice from a supplier charging you VAT where they have not included your TRN, unless the invoice is for less than Dh10,000 whereby different rules apply for smaller value invoices.
Your invoices must show a sequential or unique number, which allows the identification of the sequences of invoices, and the date of invoice plus the date of supply if it’s different from the invoice date. For each invoice line you must give a description of the service, the quantity, unit price, total payable in dirhams and the rate of VAT charged on that line, for example 5 per cent. Interestingly you do not need to show the VAT in dirhams charged on every line. In the invoice summary you must include the total amount payable in dirhams and the total VAT payable.
You are permitted to invoice in a currency other than dirhams but if you do, you still need to show all of the information above in dirhams as well as in the invoice currency. For conversion from USD to AED you need to use an exchange rate approved by the Central Bank of the UAE and show the rate used on the invoice. Wherever possible try to invoice in dirhams as it avoids the extra complexity that foreign currency invoicing introduces.
Read more from Lisa Martin:
I use a company to assist me with my yearly trade license renewal. They pay everything on my behalf and in turn invoice me for the licensing body costs, their out of pocket expenses and the fee for their services. They have added VAT for their services but for the amounts paid over to my licensing body and for their recharged expenses there is no VAT charged. I'm certain they have paid VAT on the licensing body fees and recharged expenses but without them showing VAT on their invoice I'm not sure what I can reclaim or if I am paying VAT twice. Is their invoicing to me correct? MM, Abu Dhabi
It’s quite a complicated issue from a VAT perspective where a third party is making payments on your behalf. Assuming they are VAT registered, the 5 per cent VAT on their fees is correct.
For the licensing body fees and out of pocket expenses you need to determine if these are classified as disbursements or recharged expenses. These two are treated very differently from a VAT charging perspective.
A disbursement is typically where the invoice is made out to your company, is paid on your behalf, and you received the benefit of the service. In this case the intermediary company is effectively just acting as your agent. They should charge you the amount they paid on your behalf including the VAT, but not show it as a vatable item on their invoice to you. Because it's not a cost to their business they can neither charge you the VAT, nor reclaim the VAT charged by the licensing body.
One thing to be wary of is that for you to be able to reclaim the VAT charged by the licensing body you must have a VAT-compliant invoice, addressed to your company from the licensing body supporting the cost.
If the intermediary company incur expenses as part of providing their service to you these are classified as recharges rather than disbursements. Examples of these types of costs would be travelling, printing, courier or telephone costs. These costs, whether shown separately or combined on the invoice, should be invoiced as the VAT exclusive amount and then have VAT added. You should not be invoiced the VAT inclusive amount and then have a further 5 per cent VAT added. Interestingly your supplier must add VAT to these recharged costs even where there was no VAT originally charged to them, for example taxis, which are VAT exempt local passenger transport, should have VAT added when it is recharged it to you. You can then reclaim this as long as it’s properly included on a VAT-compliant invoice.
Lisa Martin, a chartered accountant with over 20 years commercial finance experience, is the founder of accounting, auditing and VAT consultancy, The Counting House. Email any VAT queries to firstname.lastname@example.org