UAE e-invoicing switch: Businesses will find they will save significantly on processing costs

In my experience of working in the UAE for two decades, most businesses create invoices digitally. Many, but not most, share them digitally too, typically as PDF documents.

So, when the UAE announces that it is going to make electronic invoicing (e-invoicing) mandatory, you may rightfully ask the question - how is it different from what we are already doing?

Trust me, it is going to be very different. In the e-invoicing scenario, what will happen is:

As of now, the UAE has announced that e-invoicing will be mandated for all B2B and business to government (B2G) transactions. In the future, business to consumer (B2C) transactions may also be brought under e-invoicing.

Given the significance of the impact of this new regulation on the way businesses are run, and on the tax authorities’ systems and processes themselves, e-invoicing mandates are usually imposed by countries in a phased fashion.

The UAE is no different. Phase 1 of e-invoicing will become mandatory in the UAE from Q2-2026. Which businesses will be covered in Phase 1 is yet to be announced by FTA.

You might wonder why is the FTA doing this. The e-invoicing mandate is linked to the VAT regime. Very briefly, what happens in a VAT regime is:

The VAT is charged to your customer through your invoices. But you don’t normally share copies of these invoices with FTA, unless say you are under an audit. So, if some businesses become a bit naughty or careless with their VAT filing - such as not reporting their output VAT and/or incorrectly claiming input VAT, FTA is potentially losing tax money.

It is not currently easy for FTA to identify such potential tax losses. By bringing e-invoicing, this gap is what FTA is trying to address. E-invoicing is currently implemented or is under different stages of implementation in over 80 countries, so the UAE is not alone in going this route.

It is quite likely that whatever processes you are following now to raise and receive invoices will have to be pretty much completely overhauled. I suggest you take more than a moment to think practically what this means, and how overwhelming this change is going to be, for your business.

Implemented properly, e-invoicing can bring many benefits for businesses, not just for tax authorities. Statistics suggest that invoice processing costs can be cut down by 80% through e-invoicing.

This is particularly true for incoming supplier invoices. Imagine if all supplier invoices followed the same standardised fields - for customer, supplier, item, price and tax details - and are shared digitally with you using the same system and format?

It becomes a lot easier to automate invoice processing all the way from receiving them through to recording the related accounting entries. But this can only happen if there you are ready to bring strict discipline in your underlying processes and implement sensible automation.

On the flip side, if not implemented properly, e-invoicing can very quickly become a reconciliation nightmare, significantly adding to the manual effort.

I know that the businesses have been facing a regulatory overdrive over the last several years with many compliance changes being introduced. I very well understand that this state of constant change can be exhausting and costly for businesses.

However I strongly advise to take this upcoming change seriously and use it as an opportunity to improve your incoming and outgoing invoice processes. Your business will reap rich rewards in process efficiency for years to come.