What is a proforma invoice?
A proforma invoice is a document that sets out the goods or services, quantities, prices, taxes and payment terms of a sale before the sale is completed. It looks like an invoice, but it is a request and a commitment on terms, not a final bill.
Buyers use a proforma to arrange payment, raise an internal purchase order, open a letter of credit or prepare import paperwork. Sellers use it to confirm the deal in writing and ask for money up front. Because it is not recorded as a sale, a proforma does not create a receivable in your books.
How is a proforma different from a tax invoice and a quotation?
A quotation offers a price, a proforma confirms the terms and asks for payment, and a tax invoice records the completed taxable supply. Each one has a different job.
| Quotation | Proforma invoice | Tax invoice | |
|---|---|---|---|
| Purpose | Offer a price | Confirm terms and request payment | Record the taxable supply |
| When issued | Before the customer decides | After the customer accepts | Within 14 days of the date of supply |
| Binding on price | Usually valid for a set period | Reflects agreed terms | Final amount |
| Recorded as a sale | No | No | Yes |
| Buyer can reclaim VAT | No | No | Yes, if it meets UAE requirements |
| Sets the VAT date of supply | No | No | Yes, if issued first |
The key point for UAE businesses is the last two rows. Under the VAT Executive Regulation, a tax invoice must carry specific details, and input VAT recovery depends on holding a valid tax invoice. A proforma does not meet that role, so your customer will need the tax invoice to claim their VAT.
When should you use a proforma invoice?
Use a proforma whenever you want payment, or a firm commitment, before you deliver. Common cases include:
- Advance payment terms. New customers, one-off buyers or large orders where you want cash before goods leave the warehouse.
- Exports. Overseas buyers often need a proforma to arrange payment, open a letter of credit or apply for an import permit.
- Custom or made-to-order work. When you buy materials or book production capacity for one customer, an advance protects your working capital.
- Government and corporate buyers. Many procurement teams need a proforma to raise a purchase order and release funds.
- Deposits on services. Event bookings, training, software projects and similar work often start with a deposit.
How does UAE VAT apply to advance payments?
In the UAE, receiving an advance payment can fix the date of supply for VAT. Article 25 of the VAT Decree-Law sets the date of supply as the earliest of the relevant events, which include delivery or completion, issuing a tax invoice, and receiving payment. If the payment arrives first, the payment date becomes the date of supply.
Here is what that means in practice:
- VAT is accounted for on the amount received. A 30% advance on a AED 100,000 order (excluding VAT) means VAT is accounted for on that 30% when it is received. The balance is taxed when its own date of supply arrives.
- A tax invoice follows within 14 days. Article 67 requires a tax invoice within 14 days of the date of supply. For an advance, that clock starts on the day the payment is received.
- The VAT goes in the return for that period. The advance is reported in the VAT return covering the period in which it was received, even if delivery happens in a later period.
- The proforma itself does not set the date. Because a proforma is not a tax invoice, issuing one does not by itself create a VAT liability. The payment, or a tax invoice, does.
- The final invoice reflects the advance. When you deliver, the final tax invoice covers the remaining value and shows the advance already invoiced, so VAT is not counted twice.
Some arrangements, such as refundable deposits or long-term service contracts, can have specific treatment. If an advance is unusual or large, it is worth confirming the position with your tax adviser.
What does a simple proforma workflow look like?
A clear workflow keeps sales, finance and the warehouse working from the same information. Five steps cover most businesses:
- Quotation. Send the price and terms. The customer accepts.
- Proforma invoice. Issue a proforma with the agreed items, prices, VAT, advance amount and bank details.
- Advance received. Record the receipt against the customer. This is the date of supply for the advance.
- Tax invoice for the advance. Issue a tax invoice for the amount received within 14 days, and account for the VAT in that period's return.
- Delivery and final tax invoice. Deliver the goods or complete the service, then issue the final tax invoice for the balance, referencing the advance.
When UAE e-invoicing applies to your business, the tax invoices in steps 4 and 5 will also be issued as e-invoices through your accredited service provider. Large businesses go live from 1 January 2027 and other businesses from 1 July 2027.
What should a good proforma invoice include?
A good proforma gives the buyer everything they need to approve and pay without a follow-up call. Include:
- The words "Proforma invoice" clearly at the top, so nobody treats it as a tax invoice
- Your business name, address and TRN, and the customer's details and TRN if registered
- A proforma number and date, plus a validity date for the prices
- Item descriptions, quantities, unit prices and any discounts
- VAT rate and VAT amount per line, and the total including VAT
- The advance amount or percentage requested, and when the balance is due
- Delivery terms, expected dispatch date and, for exports, the Incoterm used
- Bank details and a payment reference the customer should quote
Key takeaways
- A proforma confirms terms and requests payment. It is not a tax invoice, so buyers cannot reclaim VAT on it.
- In the UAE, receiving an advance can set the date of supply, and VAT applies to the amount received.
- Issue a tax invoice within 14 days of receiving the advance, then a final tax invoice on delivery.
- A simple flow works well: quote, proforma, advance received, tax invoice, delivery.
How Omegamatrix can help
NeatAccounts takes you from quotation to proforma invoice, advance receipt and tax invoice in one cloud system, with every document against the same customer record. Proforma invoicing is an add-on module that we switch on when your business needs it. It is UAE VAT and corporate tax ready and supports PINT AE e-invoicing through your accredited service provider. You can try it with a 15-day free trial after sign-up.
Frequently asked questions
Is a proforma invoice a tax invoice in the UAE?
A proforma invoice is not a tax invoice in the UAE. A proforma confirms terms and requests payment, while a tax invoice records the taxable supply and must meet the requirements of the VAT Executive Regulation. Buyers need the tax invoice, not the proforma, to reclaim input VAT.
Is VAT due when a customer pays an advance in the UAE?
VAT is generally due when a UAE business receives an advance payment, because receipt of payment can set the date of supply under Article 25 of the VAT Decree-Law. VAT applies to the amount received, and the advance is reported in the VAT return for that period.
When must a tax invoice be issued after receiving an advance payment?
A tax invoice must be issued within 14 days of the date of supply under Article 67 of the UAE VAT Decree-Law. For an advance payment received before delivery, the 14 days usually start on the date the payment is received.
Does issuing a proforma invoice create a VAT liability?
Issuing a proforma invoice does not by itself create a VAT liability, because a proforma is not a tax invoice. The date of supply is set by the earliest of delivery or completion, receipt of payment, or the issue of a tax invoice.
What is the difference between a quotation and a proforma invoice?
A quotation is an offer of price that the customer can accept or decline. A proforma invoice comes after acceptance, confirms the agreed terms and asks for payment, often an advance, before delivery.
Can a proforma invoice be used for exports?
A proforma invoice is widely used for exports because overseas buyers often need one to arrange payment, open a letter of credit or obtain an import permit. The final commercial and tax invoice is still issued when the goods are supplied.
Sources
- UAE Ministry of Finance, Federal Decree-Law No. 8 of 2017 on Value Added Tax and amendments (Article 25, date of supply; Article 67, tax invoice within 14 days)
- PwC Middle East, summary of the VAT Executive Regulation (Cabinet Decision No. 52 of 2017) (Article 59, tax invoice contents)
- UAE Ministry of Finance, Ministerial Decision No. 243 of 2025 on the Electronic Invoicing System
- BSA Law, Clarifications where the VAT law seems unclear (advance payments and date of supply)
- Velmont Crest, Proforma invoice in the UAE