- Corrective Documentation Is Mandatory: When a supply is misclassified (e.g., zero-rated instead of 5% VAT), businesses must issue a Tax Credit Note to cancel the original invoice and a new Tax Invoice with the correct VAT, regardless of the amount involved.
- Voluntary Disclosure Threshold and Legal Tension: If the omitted VAT exceeds AED 10,000, a Voluntary Disclosure (VD) is required under procedural regulations, even though the VAT Law suggests adjustments can be made in the period the error is discovered—creating a legal tension between the two frameworks.
- FTA Practice and Reconciliation Needs: Despite the VAT Law’s provisions, the Federal Tax Authority (FTA) mandates that such corrections be reported via VD in the original period, potentially triggering penalties. Businesses must reconcile VAT returns and ledgers to ensure audit readiness.
Source KPMG
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