VAT arrives in the UAE and Saudi Arabia: reading invoices for strapping components

On 1 January 2018 the United Arab Emirates and Saudi Arabia began charging value added tax at 5% on most goods and services. The other Gulf Cooperation Council states were expected to follow later, without fixed dates at that point, as AP reported on 27 December 2017. Six weeks into the new system, a new kind of supplier invoice was arriving on the desks of purchasing, receiving and accounts teams at packaging distributors and packers.

Strapping components are a useful test case. They are bought in cartons and rolls, often in several closely related variants, sometimes priced in a foreign currency and sometimes imported. Each of those features can make a tax invoice harder to match with the order that produced it. This article is a buyer’s checklist for VAT invoices for packaging components, not tax advice; the tax treatment of a particular purchase belongs with a qualified adviser.

The legal framework in the UAE

The UAE system rests on Federal Decree-Law No. 8 of 2017 and its Executive Regulation, issued as Cabinet Decision No. 52 of 2017. According to a summary by STA Law Firm published on 5 February 2018, Article 59 of the Regulation sets out what a tax invoice must contain, and issuing a non-compliant invoice could attract an administrative penalty.

The same summary distinguishes a full tax invoice from a simplified one. The simplified form applies to lower-value supplies; for supplies to a registered recipient, AED 10,000 is the dividing line given. Check which form applies to your typical order value. The rest of this article works through the full form, because it carries the most detail to check.

Saudi Arabia introduced VAT on the same day and at the same 5% rate, under its own law and implementing regulations. Do not assume the Saudi invoice rules are word for word the same as the UAE’s. If you buy for sites in both countries, keep two checklists.

What a full UAE tax invoice should show

The STA Law Firm summary lists the particulars of a full tax invoice, and a Khaleej Times guide published on 31 December 2017 made the same practical points: the document should be titled as a tax invoice, carry the supplier’s tax registration number and show amounts in dirhams. Set beside a component purchase, the particulars look like this:

Particular on the invoice	What to compare it with for a component order
The words “Tax Invoice”	Distinguishes it from a pro forma or a delivery note
Supplier name, address and Tax Registration Number	Your approved supplier record
Your name, address and TRN, where you are registered	Your own registration details, spelled consistently
A unique sequential invoice number and date of issue	Your accounts payable log; watch for duplicates
Date of supply, if different from the issue date	The delivery or collection record
Description of the goods	The purchase order line: family, nominal strap width, wire diameter or sheet thickness, finish
Unit price, quantity, tax rate and amount payable in AED	The agreed unit (pieces, cartons or rolls) and agreed price
Any discount	The quotation terms
Gross amount payable in AED	The total you expect to pay
Tax amount in AED, with the exchange rate if invoiced in another currency	Your treasury record for foreign-currency purchases

The last line deserves attention. Packaging components bought across borders may be quoted in US dollars or euros. Under the rules summarised above, the tax amount still has to be stated in dirhams, together with the exchange rate used.

Make each component line identifiable

A tax invoice can be formally complete and still be useless to a warehouse. “Buckles 19 mm, 10 ctns” satisfies nobody when the same supplier sells two wire diameters at that width, or both a galvanized and a phosphated finish.

Ask suppliers to describe each line with the same fields used on your purchase order:

• product family and part reference
• nominal strap width, plus wire diameter for buckles or sheet thickness for clips and seals
• finish, where more than one is offered
• unit of sale (pieces, cartons of a stated count, or rolls of a stated length)
• quantity in that unit

When the invoice description matches the order line, the receiving check, the stock record and the tax record all point to the same item. The RFQ checklist uses the same fields, which makes the match easier from the first quotation onwards.

Freight, packing and corrections

Show freight, pallets or special packing as separate lines when they are charged separately. If part of a delivery is short, damaged or returned, agree how the correction will be documented before deleting or amending anything in your own system. A corrected record that cannot be traced back to the original invoice causes more work at the next reconciliation than the original error did.

Imports and cross-border purchases

Goods brought into the UAE or Saudi Arabia from abroad fall within the new VAT systems too. Before the first shipment arrives under the new rules, confirm with the customs broker and your adviser how import VAT will be declared and accounted for, which document will evidence it, and who in your organisation keeps that document. The Gulf enquiry guide explains why the named delivery point should be fixed in the quotation; the delivery rule agreed with that point decides who handles the import formalities.

A receiving and accounts checklist

• The supplier’s TRN on the invoice matches the supplier record.
• Your TRN and legal name are shown correctly.
• Each line names the same item, unit and quantity as the purchase order.
• Prices and discounts match the quotation.
• AED amounts are shown, with an exchange rate for foreign-currency invoices.
• Freight and packing charges are separated and expected.
• Short or damaged quantities are recorded against the original invoice number.
• Import documents are filed with the related purchase order.

Preparing a component order

YAKU’s galvanized wire buckles, sheet metal clips and steel strapping seals are listed with the dimensions that belong on an order line. Commercial terms for a specific order are agreed in the quotation. Share the part references, quantities, units and delivery point through the enquiry page.