Electronic credit note: what it means in UAE tax.
The meaning of electronic credit note under UAE tax law: how it works, a worked example in AED, common mistakes and the legal references.
An electronic credit note is the structured credit note a UAE business in the e-invoicing system must issue to cancel, reduce or correct an e-invoice.
What electronic credit note means
Also called: E-credit note, Electronic tax credit note.
An electronic credit note is a credit note issued, transmitted and received in a structured electronic format that allows automatic processing. It is how a business in the UAE e-invoicing system reduces or reverses an e-invoice it has already sent.
Ministerial Decision No. 243 of 2025 lists four cases where the issuer must send one: the transaction is cancelled, the agreed price is reduced for any reason, the price is refunded in full or in part, or there is an administrative or numerical error. The VAT law was amended so that a tax credit note includes an electronic credit note, and a VAT registrant within the system must issue its tax credit notes in that form.
For an SME this changes how corrections work. In the system an invoice cannot be cancelled or rejected, negative invoices are not allowed and debit notes are not permitted under UAE VAT law. Every downward correction goes through an electronic credit note, sent and reported through your Accredited Service Provider on the same timeline as an invoice.
How it works
- A VAT registrant issues and transmits the credit note within the VAT law timeline; anyone else in scope has 14 days from the Date of Business Transaction.
- The credit note must carry a reason code (BTAE-03) and refer to the original invoice. A volume discount (code VD) is the exception that need not refer to one invoice.
- Some tax credit note clauses of the VAT Executive Regulation, including the paragraph on showing original value, correct value and difference, do not apply to electronic credit notes (Article 60(8)).
- If a credit note would take the total payable below zero, including on a summary invoice, it must be an electronic credit note.
- A late electronic credit note carries a penalty of AED 100 each, up to AED 5,000 per calendar month, once the business must implement.
Worked example
A Sharjah furniture maker e-invoices an office fit-out company for desks. The goods arrive late and the parties agree to cut the price by AED 2,000 before VAT. The maker issues an electronic credit note citing a price reduction and the original invoice.
| Original e-invoice, before VAT | AED 18,000 |
| Original VAT at 5% | AED 900 |
| Credit note, before VAT | AED 2,000 |
| Credit note VAT at 5% | AED 100 |
| Revised total with VAT | AED 16,800 |
The credit note reduces the maker's output tax and the buyer's input tax by AED 100, and both sides' providers report it to the FTA.
Common mistakes
- Trying to edit or delete an invoice already sent. Corrections must be made by credit note.
- Raising a debit note to add a charge. Debit notes are not permitted; issue a further e-invoice instead.
- Leaving out the reason code or the link to the original invoice.
The law
- Ministerial Decision No. 243 of 2025 on the Electronic Invoicing System, Article 1 (definition) and Article 6, Clauses 2, 4 and 5
- Federal Decree-Law No. 8 of 2017 on Value Added Tax, Article 1 (definitions of Tax Credit Note and Electronic Credit Note) and Article 70(4)
- Cabinet Decision No. 52 of 2017 (Executive Regulation of the VAT law), Article 60, Clause 8
- Cabinet Decision No. 106 of 2025 on violations and administrative penalties for the Electronic Invoicing System, annexed table item 3
Frequently asked questions
Can my customer reject an e-invoice instead of me issuing a credit note?
No. The Ministry says there is no rejection step for the buyer in the Peppol exchange. If the invoice is wrong, the seller corrects it with an electronic credit note.
Is an electronic credit note needed for a business that is not VAT registered?
Yes, if the business is in scope. The four credit note cases in Ministerial Decision No. 243 of 2025 apply to any issuer. The VAT law rule on tax credit notes applies to registrants.
Related terms
Tax credit note · Tax invoice · Output tax · E-invoicing Accredited Service Provider. See every term in the UAE tax glossary.
For the full picture, read our guide: UAE e-invoicing: what SMEs should do now.
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