When to issue a tax credit note in the UAE, and what it must show

The VAT law allows an adjustment to output tax after an invoice is issued in a set of situations. In everyday terms these are:

• The supply is cancelled after the tax invoice was issued.
• The price changes, for example because of a negotiated discount or a pricing error.
• Goods or services are returned or rejected, in whole or in part.
• VAT was charged in error, such as 5% on a supply that should have been zero-rated.

The VAT Executive Regulation sets out the content. In summary: the words 'Tax Credit Note', your name, address and TRN, the recipient's name, address and TRN where registered, the date it is issued, the value of the supply shown on the original tax invoice, the correct amount, the difference and the VAT on that difference, a brief explanation of the reason, and information to identify the original tax invoice.

Cabinet Decision No. 149 of 2026 corrected a drafting point from 1 October 2026: the words 'Tax Credit Note' must appear on the credit note itself. Most templates already did this, but it is worth checking yours.

A Sharjah building materials supplier invoices a contractor AED 80,000 plus AED 4,000 VAT for tiles in May. In June, the contractor returns AED 12,000 worth of the wrong shade. The supplier issues a tax credit note referencing the May invoice: original value AED 80,000, correct value AED 68,000, difference AED 12,000, VAT AED 600, reason 'return of 150 boxes, wrong shade'.

In the supplier's June return the AED 600 reduces output tax. The contractor, if registered, reduces its recoverable input tax by AED 600 in its return. The May return is not reopened; the adjustment happens in the period the credit note is issued, as the rules provide.

Deleting the original invoice and issuing a new one with a fresh number breaks the sequence and leaves no trail. Issuing a 'credit note' without the VAT split, just a net figure, leaves the customer unable to adjust correctly. Offering a settlement discount by simply accepting a lower payment, with no credit note, leaves output tax overstated on your side and input tax overstated on the customer's.

Bad debts are a separate route. If a customer never pays, a credit note is not the tool; the VAT law has a bad debt relief mechanism with its own conditions, including timing and notice to the customer. Speak to your tax agent before writing off a large balance.

Under Cabinet Decision No. 129 of 2025, effective 14 April 2026, failing to issue a tax invoice or tax credit note as required attracts a penalty of AED 2,500 per case, according to published summaries. Issue the credit note when the event happens, not at the end of the quarter, so the adjustment lands in the right period and the customer can match it.

In HelloBooks you create a credit note from the original invoice, so the link, the original value and the customer details carry across. The AI suggests the reason text from what you type, such as 'returned 150 boxes', and calculates the VAT on the difference per line. If someone tries to delete a posted invoice, HelloBooks prompts for a credit note instead, and the audit log keeps both documents. The VAT 201 draft picks up the adjustment in the right period. Custom credit note layouts, including bilingual versions, are available on request.