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For those companies that do business in Saudi Arabia, there is another factor that they need to consider on how to sustain legal compliance in terms of taxes –the rules on VAT invoicing in Saudi Arabia. According to Saudi VAT regulations, the taxable person must submit a thorough tax invoice, a simplified tax invoice, or a summary tax invoice based on the kind of transaction. Knowledge of these requirements is important for business entities to be able to operate free from penalties with regards to their financial transactions.
The Kingdom of Saudi Arabia has several regulations regarding the issuance of VAT invoices so as to bring some order in the documentation of taxes and promote the clarity of transactions between companies. From the plain and simple VAT invoices to complicated documentations for specific situations, every business person needs to understand what kind of invoice they need to produce and when they need to produce it. This guide to VAT invoicing in Saudi Arabia will help you understand the key points related to tax invoices, electronic invoices as well as other important documents that have to be used in compliance with the legislation on VAT.
Therefore, the e-invoicing in Saudi Arabia, particularly in E-invoicing in Riyadha, has become more important apart from the conventional VAT invoicing. It also reduces complex approaches, improves the degree of correct results, and optimizes interaction between the companies and the tax authorities. Follow us in this post to learn all the basic information about VAT invoicing in Saudi Arabia so you can be equipped for compliance and optimization for your business.
The Unified VAT Agreement requires every taxpayer to provide a tax invoice with information of supply, VAT levied, and data of the taxpayer and the recipient of goods or services.
Standard-rated taxable supplies of SAR 1,000 or more: Invoices under VAT regulation must be issued for any transaction of one thousand SAR or more to a taxable person or a non-taxable business entity.
Export of goods to non-GCC states: Supplies that are exported outside the GCC region are classified as zero rated whereby a business is in a position to charge input VAT whereas no VAT is charged on the supply.
Zero rated taxable supplies inside the Kingdom of Saudi Arabia: Some taxable supplies of SAR 1,000 or more can be rendered to a taxable person or a non-taxable business person sold at a zero rate as a way of promoting compliance with the VAT Act but at the same time encouraging certain transactions.
Intra-GCC taxable supplies: Businesses in the GCC states are currently able to charge and account for VAT at a standard rated once the GCC VAT system has been rolled out across member states.
Supplies under the profit margin scheme: Any second-hand goods with input VAT credit sold under the profit margin scheme must come with a tax invoice that shows the amount of VAT is charged based on the profit margin, not the value of the items.
Nominal supplies: Supplies that are made for no consideration such as gifts, samples or supplies for own use are classified as zero rated supplies and have specific invoicing for VAT.
According to the VAT invoicing rules in Saudi Arabia, any person that is not registered under the system is not allowed to issue tax invoices or charge VAT to his clients. This means that only those persons or companies that are registered for VAT in the Kingdom can legally issue tax invoices. However, a non-registered entity that tries to issue such an invoice or collect VAT is in violation of the regulations, at the same time risking severe legal consequences VAT Invoicing in Saudi Arabia.
The penalties that accompany infringement of this regulation are severe. If a person or a company is involved in the issuance of a tax invoice or any document to the effect or if he is involved in the collection of VAT without registration, he is liable to heavy penalties. The highest penalty that can be imposed on such violations is up to SAR 100,000 which discourages the violators from continuing the violation. This strict enforcement has implications on VAT registration and compliance with the invoicing regulations set by the Saudi authorities.
In regards to the content of a tax invoice, a taxpayer may issue invoices either in paper or electronic form. In any case, the tax invoice has to include certain essential features that are required by the VAT legislation in Saudi Arabia. This is a very important condition, that is, the tax invoice must be made in Arabic language, and in other languages, if any. This way, all the parties that are likely to come across the invoice can easily understand its content, hence reducing chances of misunderstanding.
Required Details on the Tax Invoice
There is a series of requirements that must be met by a compliant tax invoice. Firstly, the header section of the document should read “Tax Invoice”. Further, it is required to comprise the issue date and the supply date to help in record keeping. There is also a need to have a sequential number for invoices to differentiate them to enable the business to manage the transactional flow easily VAT Invoicing in Saudi Arabia.
Taxable Amount and VAT Details
Tax invoices have to state the amount of tax, which has to be expressed net of VAT. The rate of the VAT to be charged on the transaction also has to be indicated together with the total amount of VAT charged, both in figures and in words. It is important to have this clarity for the supplier as well as the customer so that the correct amount of VAT is charged.
Timing of Issue of a Tax Invoice
Saudi Arabian taxpayers are under obligation to provide a tax invoice, in paper-based form or electronically, to the customer no later than 15 days after the month in which the supply was made. This means that if a supplier makes a supply of goods or services in May, then the tax invoice must be issued before 15th June. Sticking to this time line is essential to avoid noncompliance of VAT laws and also to keep records for the supplier and the customer.
Impact of Date of Supply on Tax Invoices
Nevertheless, there are circumstances where the date of supply is before the date of delivery or performance. For example, if a tax invoice has been issued before the supply of goods, the supplier still has to follow the provisions of VAT according to the date of issue of the invoice. This extends to paying Value Added Tax and submitting the returns as and when required VAT Invoicing in Saudi Arabia.
Simplified Tax Invoice
A simplified tax invoice is different from a normal tax invoice in that it has less detail but is still a proper VAT compliant invoice. This helps to avoid long procedures of clearance with many documents which is suited for small scale sales or consumer related services.
Contents of a Simplified Tax Invoice
The guidelines on the documents issued by the Zakat, Tax, and Customs Authority (ZATCA) indicate the basic details that have to be included on a simplified tax invoice. Some of these details include; the date of the invoice, the name, the address, and TIN of the supplier, and the description of the supplies made. On the other hand, if the total amount includes tax, a statement to that effect should be made. These requirements ensure that even if the invoices are simplified they contain information that is useful in compliance and record keeping.
Summary Tax Invoice
In Saudi Arabia, the suppliers who undertake supplies of goods or services to a particular recipient on a regular basis, and in relation to the same customer within a single tax period, they may issue a summary tax invoice. This means that where a taxpayer makes more than one taxable supplies to a customer in a particular month, he may issue a single tax invoice instead of issuing different invoices for the individual supply.
The summary tax invoice must also meet the same content requirement and rules as any normal tax invoice so as to be able to capture all the required details. It also makes the invoicing easy for the suppliers and customers while keeping into consideration the value added tax.
Invoices in Case of Special Circumstances
Part 3 of the Unified VAT Agreement and Article 32 of the Implementing Regulations in Saudi Arabia provide for special conditions for issuing tax invoices. These regulations are aimed at specific invoicing scenarios which differ from the general practice; thus, all stakeholders know what is expected of them, and the process to follow in order to meet the requirements. In this regard, the authorities facilitate transparency and effectiveness of the tax transactions, thereby contributing to the enhancement of VAT system in the Kingdom.
Third-Party Billing
In certain circumstances, a third party is allowed to make a tax invoice for the supplier. This can be used where the supplier makes taxable supplies to the customer and the third party must show the supplier’s TIN stating that the invoice is issued on behalf of the supplier. In particular, the third party cannot put its TIN on the invoice, and the supplier cannot issue a tax invoice where the third party has already issued one. The supplier and the third party are under an obligation to inform the relevant authority of their acceptance to issue third-party tax invoices while keeping communication clear over the invoicing process.
Self-Accounting of VAT
The mechanism of self-accounting for VAT is used in a situation when a resident in Saudi Arabia receives goods or services from a non-resident supplier. In such cases, the recipient is required to account for VAT under the reverse charge mechanism, this is, the non-resident supplier issues a VAT invoice to the recipient who accounts for the VAT without the need for a tax invoice.
Profit Margin Billing
The VAT invoicing rules for the profit margin scheme differ according to the transaction and the conditions of the sale. Where a taxable buyer purchases eligible used goods from a non-taxable supplier, the buyer must issue an invoice that meets the implementing regulations but is not a tax invoice. However, if a registered supplier opts to use the profit margin scheme in relation to the supply of eligible second-hand goods, he has to issue a tax invoice showing the supply without the indication of the VAT amount which the buyer cannot deduct.
However, the VAT is included in the price and the tax invoice must indicate that the amount of VAT is computed according to the profit margin scheme for the selected second hand goods. This structured approach helps the law to be complied with while at the same time taking cognizance of the fact that transactions in used goods are different.
Self-Billed Tax Invoice
A self-billed tax invoice enables a customer to issue a tax invoice for the supplies made to him by a supplier. For this invoicing method, the following conditions have to be met; the customer must validate the supplier’s TIN to ascertain that he/she is registered and that the invoice relates to taxable supplies only. The self-billed tax invoice has to be made within 15 days of the month of the supply and it has to be marked as ‘self-billed tax invoice’. A contract has to be set before supply is made, and both parties have to inform the relevant authority of the supply in the manner as may be prescribed.
Other types of documents used in KSA VAT
Electronic Invoicing
Currently, according to the VAT rules of Saudi Arabia, electronic invoicing has been made mandatory for all the taxpayers from December 4, 2021. This requirement means that any invoice has to be issued through only the approved compliant electronic solutions to avoid variations in invoicing. In e-invoice format, the taxpayers are supposed to ensure the genuineness of the e-invoice received, its content to be unaltered and the readability of the e-invoice. The transition to electronic invoices has been launched to increase effectiveness, to decrease tax evasion, and to improve the possibilities of monitoring by the authorities. Therefore, these electronic systems become necessary for businesses to use in order to fulfil VAT obligations.
Credit Note and Debit Note
Credit and debit notes are useful in making adjustments to tax invoices that have already been issued into the market. A supplier is also obliged to make a credit note in cases where supplies have been cancelled in part or in full, which may happen for different reasons, such as customer’s returns or cancellation of orders.
On the other hand, a debit note is raised where there has been a new development in the supply that results in a change of the VAT charged, or change of the agreed consideration such as an extra discount granted after the sale. These notes are of great importance in making certain that all records of the excise are correct and in keeping suppliers and customers knowledgeable of their VAT Invoicing in Saudi Arabia.
Conclusion:
Therefore, the Saudi Arabia’s VAT legislation includes some standards of invoicing and reporting that concern the use of the electronic invoices, the use of the credit and debit notes. Electronic invoicing is rather efficient in the following ways: firstly, in the process of creating invoices; secondly, in increasing the credibility and legibility of tax declarations for the companies and the tax authorities. Therefore, the purpose of this paper is to devote attention to that particular aspect of electronic invoices that would help taxpayers meet their obligations as well as contribute to the enhancement of the tax system.
Secondly, credit and debit notes present the other major method of making adjustments in the invoices so as to have correct record in the financial books of the organizations. When to issue these notes is equally important in the changes of the amount of supply and consideration that different businesses enter into while at the same time, following the set VAT laws. Hence credit notes and debit notes are good measures that enhance the adoption of the VAT system and ensure credibility in the business transactions.
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