VAT on Discounts and Credit Notes in the UAE: Rules & Steps

How UAE VAT treats discounts and credit notes: the 14-day deadline to issue a credit note, what it must show, and the AED 2,500 penalty for missing one.

12 November 2026Qawi8 min read

Key takeaways

A discount shown on the original UAE tax invoice reduces the value of the supply, so VAT is charged only on the discounted price, provided the customer actually gets the benefit and the supplier funds the discount (VAT Executive Regulation, Article 28).
A price reduction agreed after a UAE tax invoice was issued needs a tax credit note, and the VAT-registered supplier must issue it within 14 days of the event that reduces the output tax (Federal Decree-Law No. 8 of 2017, Article 62(2)).
A UAE tax credit note must show the words "Tax Credit Note", the original and corrected value of the supply, the difference and the VAT on it in AED, a brief reason, and enough detail to identify the original supply (Executive Regulation, Article 60).
Failing to issue a required tax credit note carries an administrative penalty of AED 2,500 for each detected case (Cabinet Decision No. 40 of 2017, Schedule 3, as of November 2026).
UAE businesses in the e-invoicing mandate will have to issue credit notes as structured electronic credit notes; the first go-live date is 1 January 2027 for businesses with annual revenue of AED 50,000,000 or more.

How does VAT work on a discount shown on the invoice?

When a discount is given at the time of sale and printed on the tax invoice, VAT is charged on the price after the discount. The Executive Regulation allows the value of the supply to be reduced by a discount only if two conditions are met: the customer has benefited from the reduction in price, and the supplier funded the discount (Article 28(2)). The value of the discount is the amount by which the consideration is reduced (Article 28(3)).

The invoice itself has to show the amount of any discount offered (Article 59(1)(i)), so a discount that exists only in a side agreement or a year-end journal doesn't count as an invoice discount.

When do you need a tax credit note instead of a discount?

You need a tax credit note whenever the output tax on a supply has to come down after the supply has happened. Article 61(1) of the Decree-Law lists the triggers: the supply was cancelled, the tax treatment changed because the nature of the supply changed, the agreed consideration was altered for any reason, the customer returned the goods or services in full or in part, or tax was charged in error.

Situation after the invoice	Document	Deadline
Supply cancelled	Tax credit note	14 days from the event
Agreed price reduced later (rebate, goodwill discount, volume bonus)	Tax credit note	14 days from the event
Goods returned and consideration refunded, fully or partly	Tax credit note	14 days from the event
VAT charged in error, or too much VAT charged	Tax credit note	14 days from the event
Too little VAT charged	New tax invoice for the extra tax	Include the tax in the period where the increase is identified

Sources: Federal Decree-Law No. 8 of 2017, Articles 61 and 62. Checked 12 November 2026.

If you'd rather not track these dates by hand, the free UAE compliance calendar lists your company's VAT and other deadlines.

What must a UAE tax credit note contain?

A UAE tax credit note must show the words "Tax Credit Note" clearly, the value of the supply on the original invoice, the corrected value, the difference between the two and the VAT on that difference in AED. It also needs a brief explanation of why it was issued and enough information to identify the supply it relates to (Executive Regulation, Article 60(1)).

Say a SHAMS trading company invoices AED 100,000 plus 5% VAT of AED 5,000, then agrees an AED 10,000 price reduction. The credit note shows an original value of AED 100,000, a corrected value of AED 90,000, a difference of AED 10,000 and VAT of AED 500. Each later credit note on the same invoice starts from the adjusted value. This example is hypothetical.

How do you issue a credit note and fix the VAT, step by step?

Issue the credit note within 14 days of the triggering event, send the original to your customer, and let the reduction flow through your VAT return. The Decree-Law treats the tax on a credit note as a reduction of the supplier's output tax and as a reduction of the customer's input tax for the period in which the customer receives it (Article 63).

Record the event that changes the price (return, cancellation, agreed reduction) and its date, because the 14 days run from it.
Locate the original tax invoice and confirm the value and VAT charged.
Issue a document titled "Tax Credit Note" with the Article 60 details above, and deliver the original to the customer (Decree-Law, Article 70(1)).
Reduce your output tax for the supply on your VAT return, filed on EmaraTax; the return is due by the 28th day after the end of the tax period (Executive Regulation, Article 64(1)).
Tell the customer to reduce the input tax it claimed on the original invoice in the period it receives the credit note.

What does it cost if you get this wrong?

The standard penalty is AED 2,500 for each detected case of a missing tax credit note. Businesses in the e-invoicing system face a separate penalty for electronic credit notes.

Violation	Penalty	Source
Failure to issue a tax credit note or alternative document	AED 2,500 per detected case	Cabinet Decision No. 40 of 2017, Schedule 3
Failure to issue and transmit an electronic credit note	AED 100 per credit note, up to AED 5,000 per calendar month	Cabinet Decision on e-invoicing violations, published by the Ministry of Finance in November 2025

Penalty amounts as of 12 November 2026. The AED 2,500 amounts were reported as unchanged by Cabinet Decision No. 129 of 2025, which took effect on 14 April 2026, so check mof.gov.ae and tax.gov.ae for later amendments.

How will e-invoicing change credit notes?

Once your business is inside the UAE e-invoicing system, a tax credit note has to be an electronic credit note issued and transmitted in a structured format that allows automated processing. An electronic document only counts as a tax credit note for VAT if it also meets the Executive Regulation requirements (FTA Public Clarification VATP046, as summarised by PwC).

Business group	ASP appointment deadline	E-invoicing go-live
Annual revenue of AED 50,000,000 or more	31 July 2026	1 January 2027
Annual revenue below AED 50,000,000	31 March 2027	1 July 2027

Dates as reported by Baker McKenzie from the Ministry of Finance decisions of September 2025, accurate as of 12 November 2026; confirm them on the Ministry of Finance site before you plan around them. ASP means Accredited Service Provider.

14 days: the time a UAE VAT-registered supplier has to issue a tax credit note after an event that reduces the output tax on a supply. Source: Federal Decree-Law No. 8 of 2017, Article 62(2), checked 12 November 2026.

What most guides don't tell you

The clock starts at the event, not at the original sale. Article 62(2) counts the 14 days from the Article 61 situation. In the FTA's own example in VATP030, goods were sold on 15 January 2023, partly returned on 21 January 2023, the refund was paid on 6 February 2023 and the credit note was due by 20 February 2023. Where the dates on your file differ, get advice on which one starts the clock.
A year-end rebate is a credit note, not a journal entry. A rebate or volume bonus agreed after invoicing alters the previously agreed consideration, which is an Article 61(1) trigger on a plain reading. Booking it only in your ledger leaves your customer's input tax unreduced.
A discount funded by a third party doesn't reduce your VAT base. Because Article 28(2) requires the supplier to fund the discount, a manufacturer-funded promotion needs separate analysis before you lower the taxable value.

Which VAT and e-invoicing deadlines apply to your company?

Credit note deadlines sit alongside return dates and e-invoicing appointment dates. The UAE compliance calendar is a free calendar of your company's UAE tax and compliance deadlines, personalised from a few questions, as a PDF and calendar file.

Frequently asked questions

What is a valid tax invoice in the UAE? A valid UAE tax invoice carries the details listed in Article 59 of the VAT Executive Regulation, including the amount of any discount offered and the gross amount payable in AED. It must be issued within 14 days of the date of supply (Federal Decree-Law No. 8 of 2017, Article 67(1)).

What is the difference between a tax invoice and a simplified tax invoice? A simplified tax invoice is a shorter form that the VAT Executive Regulation allows in defined cases, with its own content list in Article 59. Check that article, or the FTA's tax invoice guidance, before relying on one, because the conditions are narrower than most accounting software assumes.

Do I charge VAT on deposits and advance payments? Usually yes: Article 19 of the VAT Executive Regulation makes tax due to the extent of the payment made or stated in the tax invoice, so a deposit can trigger VAT before delivery. The date-of-supply rules in Articles 25 and 26 of the Decree-Law decide the exact timing, so check them for your type of supply.

What is the tax point for VAT in the UAE? The tax point is the date of supply under Articles 25 and 26 of Federal Decree-Law No. 8 of 2017, and the 14-day tax invoice deadline runs from it. The rules differ for goods and services, and for payments received before delivery, so confirm which rule fits your transaction.

How do I correct a mistake on a previous VAT invoice? If you charged too much VAT, issue a tax credit note within 14 days; if you charged too little, issue a new tax invoice for the extra tax (Decree-Law Articles 61 and 62). Errors already reported on a filed VAT return follow a separate correction route with the FTA, so check that route before you amend anything.

About Qawi · Qawi is a corporate services firm licensed in the Sharjah Media City (SHAMS) free zone, handling company formation, visas and PRO, bookkeeping, VAT and corporate tax for UAE businesses. Guides are researched from FTA, Ministry of Finance and free zone sources. Qawi on LinkedIn

Sources

Last checked: 12 November 2026

This is general information, not tax or legal advice for your specific situation.