Comprehensive Guide to VAT Reconciliation in Saudi Arabia

The activity of VAT compliance is very important for the companies in Saudi Arabia. As VAT is a form of sales tax levied on goods and services, it is crucial to report all these sales correctly to avoid any discrepancies with the Zakat, Tax, and Customs Authority (ZATCA). This is where VAT reconciliation is important as it ensures that the amounts reconciled are accurate and correctly reported.

Thus, it helps in matching the sales and purchase records to check the VAT that a business needs to pay or the amount of VAT that the business can claim on the basis of actual transactions. This paper also highlights that with the advancement of technology in Saudi Arabia, the accounting e-invoicing system has been introduced in the country through which the VAT process can be carried with effectiveness and less chances of mistakes.

A major improvement in VAT reconciliation was brought by the introduction of e-invoice made mandatory by ZATCA. The traditional, conventional method of data management through record keeping was time consuming and inaccurate in most cases that dealt with taxes, making most clients to overpay or underpay. That said, with the adoption of e-invoicing in Saudi Arabia, a business can easily keep real-time transaction records, hence easing the process of VAT reconciliation. This kind of digital change does not only improve the financial report credibility but also reduce the risk of tax compliance.

In this article, you will get all the required information for VAT reconciliation in Saudi Arabia. In this article, we will discuss how businesses can find out how to work with accounting e-invoicing in Riyadh, how to avoid penalties, and how to work on tax optimization. This piece will be informative to both a small business person as well as a corporate entity in terms of the taxation, particularly VAT.

What is VAT Reconciliation?

Reconciliation therefore means a process of comparing two similar data sets with a view of identifying similarities. In the Saudi VAT context, reconciliation refers to the matching of the sales with the e-invoice before reporting to the Zakat, Tax and Customs Authority (ZATCA). It is necessary to do business reconciliation before filing of VAT returns in order to have accurate returns.

In addition, the e-invoicing requires that the businesses report the sales transactions to the ZATCA. With the kind of transactions available with ZATCA, the concept of reconciliation becomes even more important since ZATCA re-verifies the data contained in the e-invoice and cross checks it with the filed VAT amount.

How E-Invoicing Affects VAT Reconciliation Process

In the second phase of e-invoicing in Saudi the organizations which are registered and fulfilling the value of KSA 100 Million were obliged to connect their ERP/POS/accounting software with ZATCA and report all the sales. Consequently, ZATCA has a record of all the business entities and each single sales transaction that is made to be submitted to ZATCA.

As a result, businesses should be more careful on the returns they input to the e-invoice as well as the VAT returns as ZATCA can easily compare the two records. Any variation will lead to a notice and additionally fines/penalties.

How to do VAT Reconciliation?

The following is the procedure of VAT reconciliation:

• In the first step, one needs to compile all information related to the e-invoice, a credit note, debit note, or any other similar records.
• The second technique involves arranging and feeding the data into a spreadsheet or a reconciliation software.
• The third step involves a comparison of the sales made under the GL/SRs and the e-invoice ones.
• The fourth task involves reviewing of the output of the VAT reconciliation statement to make sure that all the information contained in the statement is correct and comprehensive.
• The differences are the following: An exact match means that the values were identical in both the sales data and the e-invoice data.; A partial mismatch means that the values were different between the sales data and the e-invoice data.; Missing in the sales data means that there was no possible matching between the sales data and the e-invoice data.; Missing in the e-invoice data means that there was no possibility of the e-invoice data matching the sales data.
• In sixth step: Resolve All the disparities that occurred due to partial matching and missing in SR. Besides, consult customers to secure missing or corrected invoices or adjust the VAT return to the right figure.

Major reasons for VAT Reconciliation Differences

The following are some of the reasons that may be attributed to such differences during VAT reconciliation:

• There are more e-invoices issued through the e-invoicing solutions than the number of total sales register.
• The credit notes that arises from the cancellation of goods sold or Customers returns not recorded with ZATCA
• Ways of completing the sales register or e-invoices which is a list of sales invoices that has failed to be produced
• Unreconciled invoices that were not altered and reissued to the ZATCA
• If the sales are reported at the end of the month to ZATCA

Certain transactions amounting to only a few hundred thousand ringgit have not been reported to ZATCA due to connectivity problem in integrating with ZATCA.

Benefits of VAT Reconciliation

The process of VAT reconciliation is useful in the following ways in addition to following the VAT rules:

• Bring in the possibility of carrying out changes and correction of errors and discrepancies concerning e-invoice integration
• The detailed instruction of this project will involve correction of all the failed e-invoices that were submitted to ZATCA.
• This shall ensure that the returns submitted are accurate as it relates to valuation of sales tax.
• Payment of correct VAT due
• Avoid ZATCA notices
• Save from penalties and fines

Also, if a business spent more in VAT on purchases than it collected from customers, it is possible for it to reclaim VAT from the authorities.

Conclusion

It is vital for the business operating in KSA to engage in the practice of VAT reconciliation since it will be helping the business to adhere to the regulations and rulings of the ZATCA and also assist in avoiding avoidable cash flow losses. This approach is useful when it comes to the reconciliation of records where one finds himself or herself in a predicament of paying more VAT than necessary or receiving penalties.

The implementation of e-invoicing in Riyadh in particular has enhanced this practice through automation of transactions and reduced chances of errors. Having real time data means that organizations can review and process the VAT reports effectively and efficiently, increase the organization’s financial compliance and record keeping and with minimal stress.

E-invoicing in Saudi Arabia is still at its early stage; hence, the enterprises are required to embrace the electronic tax tools to meet the legal requirements and functionality. The use of e-invoicing system helps in simplification of VAT reconciliation whereby it becomes easier to monitor sales, purchases and tax compliance all at once. With the help of these innovations, companies can minimize tax-related dangers, increase the efficiency of their accounts, and work on development instead of worrying about their mistakes in calculating and filing VAT.