To enhance the transparency and efficiency of the overall business ecosystem, one of the core building blocks is electronic invoicing. It aligns with the UAE’s goal of a digital and paperless economy. Electronic invoicing, or e-invoicing, is more than just a digital version of a traditional invoice; it’s a system that enables businesses to generate, deliver, and store invoices. Furthermore, it shares the data with the tax authorities on a real-time basis to avoid any tax leakages. In this blog, we provide an introduction to e-invoicing in the UAE.
Introduction to E-Invoicing in the UAE
The new invoicing system will standardize and simplify the overall process. In addition, it will automate the sharing of data with the Federal Tax Authority (FTA).
What is an E-Invoice?
According to the Ministry of Finance, an e-invoice is a structured form of invoice data that is issued and exchanged electronically between a supplier and a buyer and reported electronically to the UAE Federal Tax Authority. It is important to note here that unstructured formats such as PDF, MS Word, images, scanned copies, and emails are not e-invoices. For further details, see the UAE e-invoicing program 2024.
How It Works
The UAE has adopted a Decentralized Continuous Transaction Control and Exchange (DCTCE) model. It is a modern approach to electronic invoicing that leverages decentralized technologies to enhance the efficiency, security, and transparency of transaction processing.
It is a 5-corner model.
- 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 corners 2 and 3 is processed in the central data platform.
Benefits of E-Invoicing
The introduction of e-invoicing brings numerous benefits for businesses, as well as for the overall economy. Let’s evaluate some objectives and benefits of the proposed mandated system.
Digitization – Towards a Paperless Economy
The new system is a step towards a paperless economy.
The digitization of data will result in a decrease in human intervention. This will, in turn, reduce errors and speed up the whole process. Overall, it will enable the UAE’s fiscal ecosystem to be digitally enabled.
Level Playing Field
The majority of the UAE businesses are micro businesses, grossing less than AED 3m in annual turnover. Therefore, they need a level playing field, with access to the latest technology at an affordable price. The new e-invoicing system will create an environment that fosters automation and simplification for all businesses.
Cross-border Invoicing
The adoption of OpenPeppol enables businesses to have access to a wider network. Thus, e-invoices can easily be exchanged with entities abroad.
Enhanced Efficiency
The standardized process will increase the efficiency and effectiveness of the overall system. The invoice processing times will be significantly reduced, 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.
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, and the overall tax gap will also reduce. The structured system will enable the UAE government to tackle the shadow economy effectively.
Economic Impact
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.
Key Legislation
The Ministerial Decision No. 64 of 2024 provides key information on the eligibility criteria and accreditation procedure for service providers under the electronic invoicing system. E-invoicing in the UAE will be live in 2026; the exact dates will be available soon.
Conclusion:
The blog detailed the introduction to e-invoicing in the UAE. The new system will bring massive benefits to the businesses as well as the UAE economy. For instance, the transparency of the new system will increase overall compliance, thus reducing the tax gap and tax evasion. Furthermore, it will raise the overall effectiveness and efficiency of the business ecosystem, reducing the operation costs and processing times of invoicing. The use of a standardised network, OpenPeppol, will enable the entities to share invoices with cross-border businesses. Lastly, a standardized system will provide a level playing field to every business, small or big, in the UAE.
Creative Zone Tax & Accounting (CZTA)
The introduction of e-invoicing in the UAE might impact your business. Therefore, it is important to act proactively. We have an in-house team of experts skilled in providing tailor-made services as per the business needs. Contact us today.
