VAT Adjustment
In UAE VAT, a special provision is incorporated to handle the output VAT Tax adjustment. The UAE VAT law allows output VAT adjustment if any of the following events occur after the supply of goods and services:
Cancellation of supply
Change in tax treatment of supply due to change in nature of supply
Alteration of consideration paid / payable
Return of goods / services in full or part
Error in charging tax on the invoice
On the occurrence of any of the events mentioned above, the output VAT previously calculated requires an adjustment. The Tax adjustment can result in increase or decrease in output VAT. In case, at the time of sale, if the place of supply was identified as inside the State and later, during movement of goods, it was found that the supply would finally be treated as being outside the State, it will not be considered as an error in charging tax in the invoice and output VAT adjustment is not allowed.
The VAT Adjustment on the instances discussed above should be adjusted in the following manner:
In case the actual tax due is more than what was previously levied, a new tax invoice for additional amount should be issued during the period when such increase was identified. This will be applicable in all the situations which will lead to increase in output VAT like an escalation of price (an upward revision of price), change in tax treatment (exempt to taxable), error in charging tax in the invoice etc.
In case the actual tax due is less than what was previously levied, a tax credit note should be issued for the differential amount. This will reduce the output tax of the supplier and input tax of the recipient. For example, the return of goods, cancellation of supply etc.