Debit Note in Oman: A Complete Guide

Debit Note in Oman: A Complete Guide

The debit note is a vital adjustment document in Oman’s VAT regime, enabling businesses to correct or increase the taxable value of a supply after a tax invoice has been issued. It ensures that VAT reporting remains accurate, transparent, and compliant with the Oman Tax Authority (OTA).

Under Royal Decree No. 121/2020 and the VAT Executive Regulations (Decision No. 53/2021), debit notes are formally recognized as part of the documentation required to adjust taxable supplies. Whether an undercharged invoice, additional service fee, or a correction to previously issued tax data, debit notes serve as the official mechanism to realign VAT reporting with the true taxable value.

Debit Note

A debit note is a formal VAT adjustment document issued by a supplier to a buyer when the amount payable for a taxable supply needs to be increased. In essence, it “debits” the customer’s account for the additional value, and VAT is recalculated on the new total.

This ensures that both the supplier and the buyer have consistent accounting records and that the VAT reported to the OTA accurately reflects the final transaction value. The debit note, therefore, acts as an amendment to the original invoice — not as a new invoice — and must explicitly reference the invoice it modifies.

When to Issue a Debit Note?

A debit note must be issued as soon as the supplier identifies that the value of a previous supply was understated or incorrectly calculated. The situations include:

• Underbilling: When the customer is billed less than the actual agreed amount because of a mistake.
• Post-supply additions: When there is an extra cost incurred, such as freight, insurance, or packaging, subsequent to the invoice date.
• Corrections: When the original invoice omitted certain taxable items or had incorrect values.
• Rate adjustments: When the VAT rate applied in the original invoice was too low due to a misclassification.

Timely issuance is crucial — the debit note should ideally be generated within the same VAT period to ensure alignment of tax reporting for both parties.

Mandatory Information on a Debit Note

To comply with the VAT Executive Regulations, a valid debit note in Oman must include the following:

Required Field	Description
Supplier’s name, address, and VAT Registration Number (TRN)	Identifies the issuer of the note
Customer’s name and VAT number (if registered)	Ensures linkage to the taxable recipient
Unique serial number	Must follow sequential numbering
Reference to original invoice number and date	Mandatory cross-reference
Reason for issuance	Example: undercharged amount, freight cost, or correction
Taxable amount increase	The additional value being added
VAT amount on adjustment	VAT applicable on the increased amount
Total adjusted amount payable	The new total consideration after adjustment

Failure to include any of these details could result in the debit note being treated as invalid for VAT purposes.

Example of Debit Note Use

Example - Underbilling Correction

ABC Trading bills OMR 10,000 inclusive of 5% VAT. Subsequently, they discovered that OMR 2,000 of freight charges were uncharged.

Debit note given: OMR 2,000 + 5% VAT = OMR 2,100.

Result: Additional VAT of OMR 100 to be recovered in the current VAT period.

Accounting and VAT Reporting Treatment

Supplier:

• Recognizes an increase in revenue and VAT payable.
• Must declare the additional VAT in the VAT return for the period in which the debit note was issued.

Buyer:

• Records an increase in expense or cost of goods.
• If VAT-registered, may claim input VAT on the additional amount, provided the debit note is valid and relates to taxable supplies.

Both parties must ensure that debit notes are accurately linked to the original invoices in their accounting systems and VAT returns.

Storage and Record-Keeping

• The VAT Executive Regulations mandate businesses to hold all debit notes for no less than 10 years following the end of the relevant tax period.
• The records may be held on either electronic or paper media, provided they can be accessed and retrieved by the OTA upon demand.
• The original invoice and debit note should be cross-referenced in accounts to provide audit traceability.
• Inaccurate or incomplete records can result in penalties at the time of audit or compliance checks.

Difference Between a Debit Note and a Credit Note

Criteria	Debit Note	Credit Note
Purpose	Increases the taxable value and VAT payable	Reduces the taxable value and VAT payable
When Issued	When supplier undercharges or adds additional cost	When supplier overcharges or customer returns goods
Effect on VAT	Increases VAT liability	Reduces VAT liability
Impact on Supplier	Increases receivables and VAT output	Decreases receivables and VAT output
Impact on Buyer	Increases payables and input VAT	Decreases payables and input VAT

Penalty for Non-Compliance

By Article 100 of the VAT Law, penalties for incorrect reporting, failure to issue debit notes, or failure to maintain records can be incurred.

• Administrative fines: Maximum OMR 5,000.
• Imprisonment: Maximum of one year where there is wilful falsification or concealment.
• Additional penalties: Can be incurred for VAT due late due to unreported adjustments.

To mitigate risk, businesses should ensure their ERP and invoicing systems are configured to generate debit notes in compliance with OTA’s data and reporting standards.

Conclusion

Managing debit notes in Oman is one of the fundamental aspects of ensuring transparency and compliance with VAT reporting. It provides suppliers and buyers with accountability for accurate financial/tax records. Debit notes will be required by every supplier under the VAT Law (Royal Decree No. 121/2020) and Executive Regulations (Decision No. 53/2021) as soon as the value of taxable supply is changed after an invoice is issued. Each debit note will have several mandatory elements, which include not limited to, supplier and buyer details, reference to the original invoice, the reason for the debit note, and the VAT amount being changed, and they must be kept for a period of at least ten years. If suppliers and buyers do not do so, they may be subject to penalties of up to OMR 5,000 or imprisonment for a term of up to one year, especially where they have made false or materially flawed reporting or have failed to maintain records. In addition to compliance with tax legislation, a proper debit note management system will support the overall reputation of a business and provide accurate information for VAT reconciliation or demonstrate financial integrity during an audit. Omani companies should proactively implement automation of debit notes within their accounting systems, train finance staff on VAT adjustment procedures, and reconcile invoices periodically to avoid costly administrative errors and penalties, and strengthen their overall tax governance system.

FAQs

1. Who issues a debit note in Oman?

The supplier issues a debit note to increase the value of a previously issued tax invoice.

2. Can a buyer issue a debit note?

Buyers can issue internal debit notes for accounting purposes, but they have no VAT effect; only supplier-issued debit notes are valid for tax.

3. Do debit notes require OTA approval?

No pre-approval is required, but debit notes must be included in VAT records and can be requested during audits.

4. How long must debit notes be retained?

At least 10 years, as per the VAT Executive Regulations.

5. Can a debit note correct a past VAT period?

Debit notes must generally be reported in the current VAT period. Older errors should be corrected via an amended VAT return.

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