UAE businesses must issue a tax credit note within 14 days of agreeing a discount or correction that reduces output VAT, under Article 62 of Federal Decree-Law No. 8 of 2017 as amended by Federal Decree-Law No. 18 of 2022 — and the discount must be shown on the original tax invoice for the supplier to reclaim the VAT difference.
TL;DR
- Trade discounts shown on the tax invoice are VAT-exclusive from the start — no credit note needed.
- Post-invoice discounts and returns require a tax credit note within 14 days.
- Credit notes need six particulars under Article 70 of the VAT Decree-Law, including the VAT difference.
- Suppliers can agree to let the buyer create the credit note — labelled 'Tax Credit Note created by buyer'.
- Missing the paperwork costs you the output-VAT reduction — you pay VAT on money you never received.
How do VAT discounts work in the UAE?
The rule that decides everything is in Federal Decree-Law No. 8 of 2017 on VAT, Article 38: when a discount is shown on the tax invoice, VAT is calculated on the net value after the discount. When it is not shown on the invoice, VAT is due on the full amount and the discount only becomes relevant later — through a credit note.
Discount types and the VAT treatment (per Federal Decree-Law No. 8 of 2017 and Executive Regulation, checked September 2026)
Trade discount on the invoice
- When it happens: Before or at the date of supply
- VAT treatment: VAT charged on the discounted amount
- Document required: Shown on the tax invoice itself
Retrospective discount
- When it happens: After the invoice
- VAT treatment: Original VAT stands; supplier reduces output VAT via a credit note
- Document required: Tax credit note within 14 days
Volume/rebate discount
- When it happens: Periodically, after multiple invoices
- VAT treatment: Aggregated and settled by credit note (or credited on the next invoice)
- Document required: Tax credit note, or agreed credit on the next invoice
Return of goods
- When it happens: After the invoice
- VAT treatment: Supplier reverses the VAT via a credit note
- Document required: Tax credit note within 14 days
Discount for a payment made early
- When it happens: After the invoice
- VAT treatment: Reduce output VAT in the period the discount is granted, per Executive Regulation Article 57
- Document required: Credit note or adjustment per the agreed terms
What the credit note must contain
Article 70 of the Decree-Law and Executive Regulation Article 63 set six mandatory particulars — a credit note missing any one of them is not a valid tax credit note:
- The words "Tax Credit Note", and a unique number.
- The supplier's name, address and TRN.
- The recipient's name, address and TRN where they are registered.
- The date the credit note was issued.
- The value of the supply as originally invoiced, the correct value after the reduction, the difference between the two, and the tax related to that difference in AED.
- A brief explanation of the circumstances giving rise to the credit note.
The 14-day clock
Since the 2022 amendments (Federal Decree-Law No. 18 of 2022), a tax credit note reducing output VAT must be issued within 14 days of the date the supplier and recipient agree the reduction, or of the date the reduction is granted under the contract — whichever applies. After 14 days the note is still an adjustment, but you risk falling out of the window the FTA recognises for a valid reduction, and the recipient cannot adjust input VAT until the note arrives.
When the buyer issues the credit note
The Executive Regulation allows a buyer-created credit note when the supplier and recipient are both VAT registrants, they agree in advance that the supplier will not issue one, the document carries all six particulars, and it is clearly marked "Tax Credit Note created by buyer". This is common in distribution chains where the buyer calculates rebates centrally.
Worked example: AED 100,000 sale, 10% retrospective discount
A supplier invoices AED 100,000 plus AED 5,000 VAT. Three weeks later the parties agree a 10% discount.
The numbers
Original supply value
- Amount: AED 100,000
Corrected value after discount
- Amount: AED 90,000
Difference
- Amount: AED 10,000
VAT on the difference (5%)
- Amount: AED 500
The supplier issues a tax credit note within 14 days of the agreement showing all of the above and the words "Tax Credit Note". The supplier reports a AED 500 reduction of output VAT in the current period; the customer reduces input VAT by the same AED 500 in the period the note was received. If the supplier is late and only discounts without a valid note, the FTA's position under Article 62 is that the output VAT charged stands — the supplier pays AED 5,000 VAT on a AED 90,000 sale.
What goes wrong in practice
- Discounts granted without referencing the original invoice. A valid credit note for a price reduction must reference the original tax invoice; a goodwill voucher or a line on the next invoice is not a credit note.
- Credit notes issued to parties who did not pay. Where the discount relates to a supply where the customer cannot recover input tax, the valuation rules tighten — check the deemed-supply amendments before assuming the 5% arithmetic holds.
- Free-of-charge replacements treated as discounts. A replacement for defective goods is not a discount and needs no credit note; treating it as one creates a mismatch in both parties' returns.
FAQs
How long does a business have to issue a tax credit note in the UAE?
Within 14 days of the date the supplier and recipient agree to the reduction in output VAT, under Article 62 of Federal Decree-Law No. 8 of 2017 as amended in 2022. The note must then carry the six particulars required by Article 70 and Executive Regulation Article 63.
Do I need a credit note for a discount shown on the invoice?
No. Where the discount is shown on the tax invoice, VAT is calculated on the discounted value at the point of supply and no credit note arises. Credit notes exist for reductions agreed after the invoice was issued.
Can the customer issue the credit note in the UAE?
Yes, when both parties are registrants, they agree the supplier will not issue one, and the document is marked "Tax Credit Note created by buyer" and carries the required particulars under Executive Regulation Article 63.
Last reviewed: September 2026 by Gautam Sanoj, Associate Manager – Tax Advisory, Finanshels. Rules per Federal Decree-Law No. 8 of 2017 on VAT as amended (Articles 38, 62, 63, 70); verify against the FTA before acting.
Sources and further reading
If VAT on discounts and credit notes sits inside a larger reconciliation problem, Finanshels' VAT services and VAT return correction guide cover the filing side.
