Credit Note in Jordan: Rules and Requirements

Credit Note in Jordan: Rules and Requirements

A credit note in Jordan is issued under the general sales tax / sales-tax system of the Income & Sales Tax Department (ISTD) and is regulated by the General Sales Tax Law (consolidated text and amendments, 1994–2023) and associated Executive Instructions. A credit note is a legal document that will reduce the value of a previously issued sales-tax invoice when goods are returned, services cancelled or errors are identified. It applies to businesses registered under Jordan’s sales-tax regime and ensures that the tax reported matches the correct value of the transaction. Every registered business must issue a credit note promptly after identifying an error or change and keep records for the statutory retention period. This blog explains when a credit note is used, what details must be included, and compliance rules for businesses in Jordan.

What is a Credit Note in Jordan ?

A credit note in Jordan is a legal correction document issued by a supplier to adjust the value of a GST or sales-tax invoice that has already been issued. It will be prepared when the amount on the invoice is higher than it should be, or when goods or services are returned or cancelled. The main role of a credit note is to correct the value of a transaction without creating an entirely new invoice.

The use of a credit note will reduce the tax amount and the total of the earlier invoice. It does not impose new tax but adjusts the existing tax that was overstated. This ensures that the tax declared in the return is accurate and not overstated.

 For example, if a business in Jordan issued an invoice of JOD 10,000 excluding tax (or with sales tax at 16 %) and later goods worth JOD 2,000 excluding tax were returned, a credit note of JOD 2,000 (net) with the corresponding tax adjustment will be created. Both supplier and customer must record the change so that accounts and sales tax returns remain accurate.

Issuance Requirements for Credit Notes in Jordan

A credit note will be issued in Jordan in situations defined by the General Sales Tax Law and its Executive Instructions. It will apply when goods are returned by a customer, services are not delivered, discounts are applied after issuing an invoice, or clerical errors are found in pricing or tax. The credit note ensures that the value of the transaction and the tax reported to ISTD match the actual outcome of the sale.

If a business charged tax on items that were later cancelled or refunded, a credit note will reduce the tax liability. The document will adjust both the amount on the invoice and the tax reported to the Department.

For example, when a customer returns defective goods worth JOD 5,000 excluding tax, a credit note of the same net value plus the corresponding tax will be issued. The supplier and customer will record the adjustment so that accounts stay correct. Without issuing a credit note, the output tax would be overstated and may lead to non-compliance risks under Jordan law.

Information Required on a Credit Note in Jordan

In Jordan, a credit note follows similar format rules as an original invoice and acts as a correction document. It should include the following details:

• Date of Issue: The date the credit note is created. This establishes when the correction took effect and determines the tax period in which the adjustment should be reported.

• Unique Serial Number: A distinct sequential number for each credit note to ensure traceability and proper record-keeping for audits.

• Supplier Details: The supplier’s full legal name, business address, and tax registration number (TIN) must be shown.

• Customer Details: The name, address, and tax registration number of the customer receiving the credit note (mandatory only if the customer is tax-registered) must be included for accurate cross-referencing.

• Reference to the Original Invoice: The credit note must clearly mention the number and date of the original invoice it corrects.

• Reason for the Adjustment: A succinct explanation such as “goods returned”, “discount applied post-invoice”, or “invoice error” should be included.

• Description of Goods or Services: The corrected goods or services should be described clearly, as in the original invoice.

• Financial Details: The document must show the net amount reduced, the applicable tax rate (e.g., 16 %), the tax amount reduced, and the total credited amount (net + tax).

• Heading “Credit Note”: The document title must clearly state “Credit Note” (or Arabic equivalent).

Credit Note and Tax Adjustment in Jordan

A credit note in Jordan will adjust the tax reported by a supplier and a customer. When a credit note is issued, the supplier will reduce output tax, and the customer will reduce input tax claimed (provided the customer was entitled to deduction). The adjustment ensures that the tax declared in the period matches the actual value of the transaction and prevents over-payment or incorrect reporting of tax.

The tax adjustment should be made in the tax period in which the credit note is issued. Note that the general sales-tax return is filed monthly or every two months, depending on the taxpayer category.

Maintaining clear and organised records of every credit note supports compliance with Jordanian tax rules and helps in audit situations. Proper records help businesses avoid penalties, reduce disputes with customers and ensure that tax reporting on returns is correct and complete. According to Regulation No. 34 of 2019, invoices and related documents must be retained for at least four years from the later of the end of the tax period, the filing of the return, or the date of notification of an assessment, and for the duration of any dispute or audit.

Process of Issuing a Credit Note in Jordan

The process of issuing a credit note in Jordan ensures that the value of a transaction and tax reporting are corrected accurately. A credit note will be issued when an error or change in a transaction is identified and must follow specific steps under Jordanian practice and accounting standards. The steps typically are:

1. Identifying the error or change in transaction
    The supplier first reviews the original invoice and identifies any error in pricing, tax rate, or returned goods or services. This step ensures the reason for the adjustment is clear and documented.

2. Preparing the credit note with all required details
    A credit note is prepared including the heading “Credit Note”, supplier and customer details, tax registration number, reference to the original invoice, description of goods or services, the amount reduced, tax adjustment, date of issue, and a unique serial number.

3. Sending the credit note to the customer
    The supplier issues the credit note to the customer on the date of adjustment. This allows the customer to update their records and input tax (if applicable) correctly.

4. Recording the credit note in the accounts of both supplier and customer
    Both parties update their accounting records with the value of the credit note. The supplier reduces sales and output tax, and the customer reduces purchases and input tax claimed (provided the original invoice allowed deduction).

5. Adjusting the tax return for the relevant period
    The adjustment of tax is made in the return for the tax period in which the credit note is issued. Failure to adjust accordingly may lead to mismatches in the system, especially given Jordan’s mandatory e-invoicing via JoFotara. Credit and debit notes must be generated and submitted through the national e-invoicing platform (JoFotara) or an approved provider so that ISTD accepts the adjustment for tax purposes.

Record-Keeping and Compliance in Jordan

Under Jordanian law, all registered businesses must keep records of invoices, credit notes and related documents for the statutory period. For invoices and corrective documents, the law states that records must be stored for at least four years from the end of the tax period or longer if audit or dispute proceedings are ongoing.

Each credit note should have a unique and sequential serial number to ensure clear tracking of a transaction. A business should ensure that credit notes are linkable to the original invoice and show the reason for cancellation or adjustment. Maintaining accurate records of credit notes ensures compliance with Jordan’s tax rules and simplifies reconciliation of accounts. A business that does this avoids penalties, reduces disputes with customers and ensures that tax reporting on returns is correct and complete.

Penalties for Non-Compliance in Jordan

Non-compliance in Jordan includes not issuing a credit note where required, missing required details on the document, failing to record the credit note in accounts, or failing to adjust the tax return accordingly. According to the General Sales Tax Law and the invoicing Regulations, incorrect or incomplete tax returns may result in financial penalties and interest based on the amount of unpaid or overstated tax identified during an audit.

Therefore, failure to issue or record a credit note correctly may result in:

• Excess tax being declared or paid

• Financial penalties from ISTD

• Interest charges for late tax payment or adjustment

• Loss of credibility with customers or disruption of accounting records

Conclusion

Credit notes in Jordan are issued under the rules of the Jordanian sales tax system and they have a direct effect on the tax compliance of a business. A credit note will correct errors on a tax invoice, reduce a tax liability, and ensure that the tax declared on the return is accurate. The supplier must issue a credit note promptly with all required details and record it properly in the accounts. Failure to issue or record a credit note correctly may lead to penalties and excess payment of tax.

A business that follows the rules for credit notes will maintain accurate accounts, strengthen trust with customers, review invoices carefully, issue credit notes on time, and keep records of each credit note for the statutory storage period to remain compliant with Jordanian tax regulations.

FAQs

1. What is a credit note in Jordan?
    A credit note in Jordan is a document used to reduce the value of a sales-tax invoice that was previously issued under the Jordan General Sales Tax Law.

2. When must a credit note be issued in Jordan?
    A credit note must be issued when goods are returned, services are cancelled, or a taxable invoice error is found under Jordanian law.

3. What details must a credit note contain in Jordan?
    A credit note in Jordan must show supplier and customer details, tax registration number (TIN), reference to the original invoice, description of goods or services, net amount reduced, tax rate, and tax amount.

4. How long must credit notes be kept in Jordan?
    Credit notes (as part of tax-invoicing records) must be kept for at least four years under Regulation No. 34 of 2019.

5. What happens if credit notes are not issued in Jordan?
    If credit notes are not issued or recorded correctly in Jordan, excess tax may be declared and penalties from the tax authority may apply.