The United Arab Emirates (UAE) is advancing towards digitization by adopting e-invoicing, a trend gaining momentum worldwide. Taking cues from the Kingdom of Saudi Arabia (KSA), the UAE government is committed to optimizing invoicing procedures and refining financial transaction management for businesses and public entities nationwide.
The e-invoicing landscape in the UAE is evolving, with a strong focus on digital transactions and paperless processes. This initiative aims to modernize invoicing procedures nationwide, simplify and automate the filing of tax returns, improve tax compliance, and reduce instances of tax evasion. This effort reflects the UAE’s commitment to innovation and efficiency in financial operations.
Initiation of E-invoicing in the UAE: An Overview
The United Arab Emirates (UAE) embraced VAT in 2018, drawing inspiration from Europe’s taxation system. This move naturally triggers the planned digitization of taxpayers’ transactions with public entities, phasing out paper documentation. Bolstered by a fully digital public procurement platform (DPP) facilitating B2G contract processes, this digitization drive aims to bolster efficiency and transparency.
Following the VAT law, the UAE’s Federal Tax Authority (FTA) acknowledges digital or electronic invoicing as a valid modality for generating and utilizing “invoices” or “Fatoorah.” Supported by “Federal Law No. 1 of 2006 on Electronic Commerce and Transactions,” electronic records, documents, and signatures are afforded legal recognition. This law establishes uniform standards for authenticating all electronic communications, including electronic invoicing, through electronic signatures, ensuring their validity.
E-invoice exchanges between businesses are already viable with mutual consent in the realm of electronic invoicing. Yet, to further streamline operations, the impending requirement of mandatory e-invoicing for the B2B sector stands as the logical progression. The UAE’s Ministry of Finance (MOF) unveiled a roadmap on July 11, 2023, outlining the enforcement of B2B e-invoicing from July 2025 onwards.
E-invoicing Framework
The UAE government will establish its own PEPPOL Authority by adopting the POPPOL PINT format. This initiative mirrors the practices of nations like Singapore, Malaysia, and Australia, aiming to streamline cross-border trade and adhere to international e-invoicing protocols.
The CTC e-invoicing framework was introduced on 14th February 2024. The UAE will adopt a “Decentralized CTC and Exchange Model” (DCTCE), which initially operates on a 4-corner model and later transitions to a 5-corner model. This approach enables trading parties to exchange e-invoices directly without needing pre-clearance from the Ministry. The system will rely on the Peppol PINT format and Accredited Service Providers (ASPs), also known as e-invoicing agents.
These ASPs will validate basic invoice information and forward it to the customers through their agents. Additionally, the agents will send the invoices to the Federal Tax Authority (FTA), serving as the fifth corner in the model. Notably, there will be no requirement for pre-clearance from the FTA, making the invoicing process more efficient and aligned with international standards.
Further, there will not be a portal for SMEs; rather, as part of the ASP accreditation criteria, the authority is considering limited free-of-charge ASP service for SMEs.
Right Choice of e-invoicing Tool and e-invoicing provider
Choosing the right e-invoicing tool and provider is crucial for compliance and efficiency in the UAE’s evolving VAT landscape. An ideal e-invoicing tool should offer robust features like seamless integration with existing ERPs and tax authority platforms, user-friendly interfaces, and secure data handling.
The E-invoicing tool should also provide real-time validation, reporting, and automated error-checking to ensure compliance with e-invoicing regulations. Additionally, features like bulk e-invoice generation, scalability, availability reliability, secure digital signatures, and easy access to electronic records are essential.
As per UAE’s requirement, an ideal e-invoicing provider must be a PEPPOL-approved accredited service provider, which ensures the seamless transfer of e-invoices among tax authorities and trading parties.
The UAE mainly adopts its e-invoicing system based on the successful model implemented in Saudi Arabia, so selecting a provider with extensive experience in the KSA market is advantageous.
Cygnet, for instance, is an experienced provider in the KSA e-invoicing sector, making it an ideal choice. Their proven track record and familiarity with regional compliance requirements can ensure a smooth transition and reliable implementation of the e-invoicing system in the UAE. By leveraging such expert solutions, businesses can stay ahead of the curve, ensuring they are well-prepared for the future of digital transactions.
