UAE e-invoicing: How should businesses start preparing?

The UAE’s upcoming introduction of electronic invoicing (e-invoicing) is not exactly groundbreaking news as a lot of countries have gone through a similar mandate in some shape or form. But compliance with it may very well be for the businesses that are impacted by it.

Saudi Arabia commenced e-invoicing in December 2021 and is in its Phase 2, which is adding smaller and smaller businesses with each wave.

While e-invoicing is a popular tool for governments, the approach varies. One key difference is in the tax authority’s role – i.e., whether the tax authority is just a passive recipient or an active validator of invoices. In Saudi Arabia, B2B and B2G e-invoices have to be validated by the Zakat, Tax and Customs Authority (ZATCA) before it can be shared with the customer.

In the UAE model, no such central validation is envisaged. As one can imagine, having to obtain a central validation for each invoice adds an additional layer of complexity to business processes. It appears that UAE wants to retain as much flexibility as possible with the businesses and hence has chosen a model which does not require this.

The e-invoicing framework that UAE has chosen is called PEPPOL, which is used by Singapore, Australia and several European countries.

You will very often hear a term called ‘five-corner model’ in the context of UAE e-invoicing using PEPPOL.

Currently, when you share invoices to the customer, the transaction has two ‘corners’: you as the supplier and your customer. The UAE e-invoicing model adds three more. One is the Federal Tax Authority (FTA). The other two are the Authorised Service Providers (ASPs) of the supplier and the customer.

ASPs are entities registered with FTA as such. Every business entity subject to e-invoicing mandate must appoint an ASP, which will then act as your digital access point into the e-invoicing system.

Your ASP’s role is to:

• Do the necessary checks and validations on the invoice data to ensure they align to the requirements of the framework; and then

• Digitally transmit relevant data to both your customer’s ASP and the FTA.

• It will also receive your supplier’s e-invoices on your behalf.

Another important terminology in relation to e-invoicing is the ‘data dictionary’, which will be mandated by the UAE Ministry of Finance and will define the structure and content of e-invoices, thus ensuring consistent invoice data exchange across the businesses within the country.

Simply put, once e-invoicing becomes applicable to you, all your invoices will have to be transmitted to customers and FTA using the e-invoice framework.

You as the customer/supplier have no control over the exchange of data between the ASPs and with the FTA. You also have little discretion in the type of data to be exchanged. What’s more, once you share an invoice, the only way to cancel or amend it is by issuing a credit note.

You however do have control over:

• Choosing your ASP: and

• The exchange of sales and purchase invoice data between your own ERP/other relevant systems and your chosen ASP.

When you assess your own internal systems and processes to determine what you need to do to comply with e-invoicing, three things that you should be really thinking about are:

1. The data gap compared to what is required by the data dictionary and how to bridge the gap.

2. How to transfer invoice data from your ERP/other systems to your chosen ASP and vice versa; and

3. Any other changes required to your processes and systems to ensure not just that e-invoicing process runs smoothly, but also that you reap efficiency benefits.

The first phase of e-invoicing is expected to commence from July 2026. We are still awaiting confirmation from FTA on which businesses will be covered in the first phase.

But sooner or later, all the B2B and B2G businesses will be covered, irrespective of whether you are VAT-registered or not.

My advice is - start your assessment now. The more well-thought-out your systems and processes are, the richer the process efficiency benefits you will reap. On the other hand, poor e-invoicing implementation can quickly become a reconciliation nightmare.