In business, customer returns are common. The return can be the return of all or part of the quantity. This may be caused by various circumstances, such as damage to the goods during transportation, failure to receive goods according to specifications, etc.
With the introduction of value-added tax in the UAE, the tax aspects of supply and return of goods also come into play. When selling goods, value-added tax is charged at the standard tax rate. When the consignee returns part/all of the goods sold, the refunded value added tax shall be reversed. When the customer returns the goods for sale, the supplier will issue the document called a tax credit. The purpose of tax credits is to reduce the taxes that suppliers should pay to the free trade zone and reduce the input tax that the recipient is eligible to recover from the supplier. Let us understand how suppliers can issue tax credit notices for customers to return goods.
Example: Ali Automobiles, a registrant in Dubai, provides 10 cars to Fatima Transports, a registrant in Ajman, at a rate of Dh50,000 each. The supplier has charged a 5% value-added tax in the amount of AED 25,000. Among the cars provided, Fatima Transport Company returned 2 cars because they were damaged during transportation. The tax credit vouchers issued by Alibaba Automobile Company for the refund of 2 cars by Fatima Transportation Company are as follows:
Tax credit notes are important documents under the UAE value-added tax. The “VAT Law” sets out the detailed information required in tax credits. Registered companies should ensure that these details are provided in each issued tax credit description.
Now let us answer some common questions about tax credit bills for companies.
Frequently Asked Question 1: Should the tax credit notice include the details of the related sales invoice?
Answer: Yes, the tax credit notice should provide detailed information about the tax invoice, that is, the supply related to it. In the above tax invoice, the “Buyer’s Reference” field displays the detailed information of the tax invoice involved in the tax credit notice.
Frequently Asked Question 2: Is there a time limit that must be issued for supply-related tax credit notices?
Answer: No, there is no time limit for issuing tax credit notices for supplies.
FAQ 3: Should the tax credit notice include the reason for its issuance?
Answer: Yes, tax credits should briefly describe the circumstances that led to the issuance of tax credits.