Tax credit note: what it means in UAE tax.
The meaning of tax credit note under UAE VAT law: how it works, a worked example in AED, common mistakes and the legal references.
A tax credit note reduces or cancels VAT on an earlier supply. UAE registrants must issue one within 14 days of the event that reduces it.
What tax credit note means
Also called: VAT credit note.
A tax credit note is the written or electronic document that records a reduction or cancellation of a taxable supply after the tax invoice has been issued. It is how a supplier corrects output tax downwards, and how the customer learns that its input tax must come down by the same amount.
The VAT law lists the events that require an adjustment: the supply is cancelled, the price changes, goods are returned and money refunded, the tax treatment changes because the nature of the supply changed, or VAT was charged in error. Where the output tax charged is too high, the supplier must issue a tax credit note within 14 days of the event.
For an SME, credit notes matter on both sides. Suppliers who skip them overpay VAT or face penalties; customers who ignore them overclaim input tax. Registrants within the electronic invoicing system must issue credit notes in structured electronic form.
How it works
- Issue the credit note within 14 days of the event that reduced the output tax, such as a return or a price reduction.
- Show the words "Tax Credit Note", both parties' details, the original value, the correct value, the difference and the VAT on that difference in AED, and the reason.
- The supplier reduces its output tax, and the customer reduces its input tax in the tax period in which it receives the note.
- Where VAT has been undercharged, the supplier issues a new tax invoice for the extra VAT instead of a credit note.
- Since 14 April 2026, failing to issue a tax credit note within the legal period carries a penalty of AED 2,500 for each detected case.
Worked example
A building materials supplier invoiced a registered contractor, then took back tiles that did not match the order.
| Original invoice value before VAT | AED 50,000 |
| VAT on original invoice | AED 2,500 |
| Tiles returned and refunded, before VAT | AED 8,000 |
| VAT reduced by the credit note | AED 400 |
| Correct value before VAT | AED 42,000 |
| Correct VAT | AED 2,100 |
The supplier cuts its output tax by AED 400 and the contractor cuts its input tax by the same amount.
Common mistakes
- Issuing an ordinary refund or a negative invoice instead of a tax credit note with the required details.
- Missing the 14 day deadline after goods are returned or a discount is agreed.
- The customer continuing to claim the original input tax after receiving a credit note.
The law
- Federal Decree-Law No. 8 of 2017 on Value Added Tax, Article 1 (definition of Tax Credit Note), Articles 61, 62, 63 and 70
- Cabinet Decision No. 52 of 2017 (Executive Regulation of the VAT law), Article 60, as amended to Cabinet Decision No. 149 of 2026
- Cabinet Decision No. 40 of 2017 on administrative penalties, as amended by Cabinet Decision No. 129 of 2025, Table No. 3, item 5
Frequently asked questions
Is a tax credit note the same as bad debt relief?
No. A credit note corrects the supply itself, for example a return or price change. Bad debt relief applies when the customer simply does not pay and has its own conditions.
Can the customer issue the credit note?
Yes, if the customer is a registrant and both parties agree that the supplier will not issue one. The document must be marked "Tax Credit Note created by buyer".
Related terms
Tax invoice · Output tax · Input tax · Bad debt relief · Simplified tax invoice. See every term in the UAE tax glossary.
For the full picture, read our guide: Month-end close for UAE SMEs: a practical checklist.
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