The UAE is committed to going all in for a paperless economy or digital economy, however, in a way that is compliant too. One of the initiatives in this regard is the electronic or e-invoicing program. The new system will be applicable from 2026. It is an arrangement that allows businesses to generate, deliver, and electronically process invoices. In the UAE, businesses and government entities are set to benefit from a new approach to invoicing where simplification, standardization, and automation will help near real-time exchange of invoices and facilitate seamless tax reporting to the UAE Federal Tax Authority. In this blog, we discuss the difference between e-invoicing and continuous transaction controls (CTCs).
Difference Between E-invoicing & Continuous Transaction Controls (CTCs)
To differentiate between the two, we need to understand e-invoicing first.
What is E-invoicing?
Electronic invoicing enables the exchange of invoice documents in an integrated format between the customer and the supplier. An e-invoice is an invoice (issued, transmitted, or received) in a structured format allowing automatic and electronic processing. For the sake of understanding, e-invoices do not include the following unstandardized invoices.
- PDF or Word format invoices with unstructured data.
- Images of invoices in formats such as JPEG or TIFF.
- Unstructured invoices in an email or a web page.
- Scanned copies of paper invoices.
- Images of paper invoices, sent via mediums like fax machines.
What are Continuous Transaction Controls (CTCs)?
E-invoicing is a broader term that involves invoice creation and exchange. However, CTC is a compliance model within e-invoicing that encompasses real-time data sharing with the tax authority. The UAE has adopted a Decentralized Continuous Transaction Control and Exchange (DCTCE) model, which is a modern approach to electronic invoicing that leverages decentralized technologies to enhance the efficiency, security, and transparency of transaction processing.
How does it work?
It is a corner 5 model that starts with the supplier or seller. The corners are as follows:
- The supplier enters the invoice data into their business software and initiates the invoicing process via their OpenPeppol Accredited Service Provider (ASP).
- The sending ASP validates the invoice data with the required standards and transmits the data to the buyer ASP.
- The receiving ASP validates the invoice data and sends it to the business software of the customer in the preferred format. The invoice data is transferred from the sending ASP to the receiving ASP securely over the OpenPeppol network.
- The business software of the customer receives the invoice data and populates the fields.
- The receiving access point validates the data and transmits it to the central data platform. The tax data reporting from corner 2 and corner 3 is processed in the central data platform.
Benefits of E-invoicing and CTCs
The primary goal of this system is to enable the UAE to become a modern paperless economy while enhancing revenue collection. Let’s evaluate some objectives of the proposed mandated system.
Digitization – Less Human Intervention
One of the benefits of the e-invoicing system in the UAE is the digitization of data and thus a decrease in human intervention. This will, in turn, reduce errors and speed up the whole process. Overall, it will digitally empower the UAE’s fiscal ecosystem.
Efficacy and Value
The standardized process will increase the efficiency and effectiveness of the overall system. The invoice processing times will significantly reduce, including the processing cost and operations. This will, in turn, result in lower use of paper. Thus, firms will have an opportunity to meet sustainability goals. All in all, there will be higher transparency and enhanced audits. Thus, there will be a higher compliance level.
Compliance
The digitalization and standardization of the invoicing system will reduce the tax gap as the system will share the data with the tax authority. Thus, the instances of tax evasion will significantly reduce; the overall tax gap will reduce. The structured system will enable the UAE government to tackle the shadow economy effectively.
Economic Effect
The organized system, with reporting to the tax authority, will result in higher compliance, which will in turn increase revenue collection. The government will have the opportunity to spend more money on building business infrastructure and ecosystems, which will, in turn, raise the competitiveness of the UAE region. Furthermore, the availability of large data will enable further improvement through the utilization of big data.
Conclusion
The blog discussed the difference between e-invoicing and continuous transaction controls. The terms e-invoicing and continuous transaction controls (CTC) are closely related; however, these are distinct concepts in the world of digital taxation and invoicing compliance. E-invoicing refers to the electronic creation and exchange of invoices, while CTC refers to the compliance system that shares the e-invoicing data with the government and tax authorities systematically and securely. The use of an e-invoicing program along with the CTC brings massive benefits to the overall economic environment. For instance, it promotes digitization and thus reduces human intervention. Consequently, this will reduce the occurrence of errors. Furthermore, the continuous transaction control system will impact the economy positively through higher tax compliance and collection.
Creative Zone Tax & Accounting (CZTA)
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