The Federal Tax Authority (FTA) has announced that businesses must complete Corporate Tax registration within 90 days from the Date of Incorporation / MOA.
The UAE government has introduced e-invoicing as a mandatory requirement for businesses to improve VAT compliance, reduce errors, and streamline audits. In this guide, we will explore the key aspects of e-invoicing in the UAE.
What is E-Invoicing and Why is it Mandatory in the UAE?
E-invoicing refers to the digital exchange of invoices between businesses and government authorities in a structured format like XML or JSON. The UAE government has made e-invoicing mandatory to improve VAT compliance, reduce errors, and streamline audits.
Who Must Comply and What Transactions are Included?
The UAE Ministry of Finance (MoF) will introduce e-invoicing in phases starting from 1 July 2026. The rollout ensures a smooth transition for businesses of all sizes.
- Pilot Phase (from 1 July 2026):
Selected companies, known as the Taxpayer Working Group, will test the system voluntarily under MoF and FTA supervision. - Voluntary Implementation (from 1 July 2026):
Any VAT-registered business can choose to start e-invoicing early, provided they meet all technical and compliance standards. - Mandatory Implementation:
- Large Businesses (≥ AED 50 million turnover) : must comply by 1 January 2027 .
- Small & Medium Businesses: must comply by 1 July 2027.
- Government Entities (B2G): must comply by 1 October 2027.
Currently, B2C transactions are not included in the e-invoicing mandate. Businesses should begin preparing early by onboarding with an accredited service provider and upgrading their accounting systems for compliance.
What is the Peppol 5-Corner Model and ASP Role?
The UAE’s e-invoicing framework is built on the Peppol 5-Corner Model, a globally recognized system for secure and standardized electronic document exchange. This model ensures that invoices flow safely and efficiently between suppliers, buyers, and authorities through certified intermediaries.
Understanding the Peppol 5-Corner Model
In the 5-corner model, every e-invoice passes through five key participants:
- Supplier (Seller): Issues the e-invoice in the approved PINT AE structured format.
- Supplier’s Accredited Service Provider (ASP): Validates, signs, and transmits the invoice to the buyer’s ASP.
- Peppol Network / FTA Infrastructure: Enables standardized, secure exchange and tracking of invoices.
- Buyer’s Accredited Service Provider (ASP): Receives and validates the e-invoice before delivering it to the buyer.
- Buyer: Receives the verified electronic invoice ready for recording and payment.
This model ensures full interoperability, allowing businesses using different systems or software to exchange invoices seamlessly across the UAE network.
Role of Accredited Service Providers (ASPs)
Accredited Service Providers are central to the UAE e-invoicing ecosystem. They act as secure digital intermediaries between businesses and the Federal Tax Authority (FTA).
Their key functions include:
- Validating invoices to ensure they meet the FTA’s technical and format standards.
- Digitally signing invoices to verify authenticity and integrity.
- Transmitting invoices in real time between suppliers, buyers, and the FTA infrastructure.
- Ensuring security through encryption, access control, and audit trails.
- Providing message status updates (MLS) — confirming whether an invoice was accepted, rejected, or requires correction.
ASPs must meet strict technical, data protection, and reliability requirements before being approved by the MoF and FTA. Businesses must select an ASP from the official list of accredited providers before their compliance deadline.
How Should Businesses Prepare for E-Invoicing Compliance?
To prepare for e-invoicing compliance, businesses should:
- Conduct readiness assessments of IT systems, ERPs, and billing processes
- Select a qualified ASP and integrate with their systems
- Update workflows and test invoice generation/exchange via pilot
- Train finance and IT teams and set up error-handling protocols
What are the Penalties for Non-Compliance?
The UAE Ministry of Finance (MoF) has not publicly specified exact penalties for non-compliance with the e-invoicing system on its official page. However, the penalties for non-compliance are expected to follow the existing framework established by the UAE's VAT and Tax Procedures Laws.
Key Penalties Under Current VAT Legislation:
- Failure to Issue Tax Invoices or Credit Notes: A penalty of AED 2,500 for the first offense, and AED 5,000 for each subsequent offense.
- Failure to Maintain Proper Records: A penalty of AED 10,000 for the first offense, and AED 20,000 for each subsequent offense.
These penalties are outlined in Cabinet Decision No. 49 of 2021 and are applicable to all tax registrants, including those subject to the e-invoicing system.
Conclusion
E-invoicing is an important aspect of VAT compliance in the UAE, and businesses must prepare to comply with the new requirements. Reyson Badger can help businesses navigate the complexities of e-invoicing and ensure compliance with the UAE authorities. Contact us today to learn more about our e-invoicing solutions.
