Supplier Invoices: What to Check Before Claiming Input VAT

Supplier Invoices: What to Check Before Claiming Input VAT

In part four every invoice got a purchase order to measure against and a receiving record to compare with, and no invoice is paid until the three documents agree. But matching answers one question: should we pay this amount to this supplier? It leaves a second question open: is this invoice itself good enough to claim its input VAT? A steel supplier's invoice can match the purchase order and the site receiving record exactly and still be missing a detail the regulations require. A maintenance contractor's invoice can arrive as a scan of a paper copy. Your company's name can be wrong on it.

This part reads the supplier invoice from the buyer's side, as set out in the VAT Implementing Regulations and in the e-invoicing documents of the Zakat, Tax and Customs Authority (ZATCA). We report what the texts say, with their article numbers, and describe how that becomes a daily check when an invoice arrives. Whether a particular amount in your company can be deducted is a question for your tax adviser, not for this article.

Why an invoice is checked twice

Article 49(7) says input VAT may be deducted only if the taxable person holds evidence of the VAT paid or payable as specified in Article 48 of the GCC Unified VAT Agreement, and ZATCA's e-invoicing resolution names the e-invoices issued under it as the tax invoices relied on for exercising the right to deduct under that article. Where the documents the Agreement specifies are missing, Article 49(7) itself allows alternative evidence, including a simplified tax invoice correctly issued under the regulations, and other commercial documents that ZATCA accepts at its discretion as proof that the VAT was correctly charged to you and that you paid it. So for the accountant an invoice is not only a request for payment. It is the evidence your right to deduct rests on.

Article 49(8) allows input VAT to be deducted in a tax period later than the one in which the supply took place, provided it is not in a period falling more than five years after the calendar year of the supply. An invoice recorded late is not necessarily lost, but the window does not stay open forever. Even so, the best day to check an invoice is the day it arrives. A missing detail can be requested from the supplier within days, which is far easier than chasing it months later, when the person who issued it has moved on or the supplier has changed its system.

What a tax invoice must carry

Article 53(5) sets out the details a tax invoice must include, and requires it to be in Arabic in addition to any other language it is issued in. Here are those details as the person receiving the invoice reads them:

• The issue date and a serial number that identifies and distinguishes the invoice. This is the number the system uses to stop a duplicate invoice, as explained in part four.
• The supplier's VAT number. It must match the number on the supplier record you verified in part three through ZATCA's VAT registration check. If the two differ, that is a question for the supplier before anything else happens.
• The name and address of both the supplier and the customer. Make sure your company's name is the one in its commercial registration, not the project name, the branch name, or the short name the supplier's sales rep uses for you.
• The quantity and nature of the goods, or the scope and nature of the services. A general line such as assorted materials or works as agreed does not show what was supplied.
• The date of supply if it differs from the invoice issue date.
• The taxable amounts by rate or exemption, the unit price excluding VAT, and any discount not already included in the unit price.
• The VAT rate applied and the VAT amount due, shown in riyals, plus a statement of the tax treatment where VAT is not charged at the standard rate.

One more number matters just as much: your own. Article 53 asks for the customer's VAT number in one specific case, where the customer is the one responsible for accounting for the VAT on the supply. But Annex 2 of ZATCA's e-invoicing resolution adds field 5.3 to the tax invoice: the customer's VAT registration number when the customer is VAT-registered, or the VAT group's number when the customer belongs to a VAT group. If your company is registered, its number must appear on the supplier's invoice, so the check runs both ways: the supplier's number matches its record, and your number matches yours.

Not every small invoice is a problem. Article 53(1) allows a supplier to issue a simplified tax invoice between businesses for a supply worth less than 1,000 riyals. A simplified invoice carries fewer details, listed in Article 53(8): the issue date, the supplier's name, address and VAT number, a description of what was supplied, the consideration, and the VAT or a statement that the consideration includes it. It is one of the alternative forms of evidence Article 49 accepts when it is correctly issued. So a box of bolts or a padlock the site supervisor picked up from a nearby shop is not an exception that needs special handling. It is an invoice checked against a shorter list.

When the supplier is in the integration phase

ZATCA's resolution splits e-invoicing into two phases: the generation and storage phase, which applies to everyone subject to the e-invoicing regulation, and the integration phase, which is applied in groups ZATCA designates. In e-invoicing in the factory and warehouse we explained what the second phase means for whoever issues the invoice. For whoever receives it, the phase the supplier is in changes what you should expect to get:

• A supplier in the generation and storage phase. It issues its invoice from an e-invoicing solution, and ZATCA's detailed e-invoicing guideline says there is no specific format for invoices in this phase or for sharing them with buyers, so they can be provided in any electronic format. Do not reject an invoice just because it has no ZATCA stamp. Your supplier may not have entered the integration phase yet.
• A supplier in the integration phase. It sends its tax invoice in XML to ZATCA's Fatoora platform for clearance before presenting it to you. If it passes validation, the platform clears it by embedding the cryptographic stamp and the QR code, and the supplier then shares it with you as XML or as a PDF/A-3 with the XML embedded. So an invoice from a raw-material supplier in this phase reaches the factory already cleared by ZATCA. When an invoice carries a QR code, the customer can verify it by scanning the code with ZATCA's app, which shows the code's content and the verification result.

In both phases, the guideline states that a paper invoice turned into electronic form by copying, scanning or any other means is not a compliant e-invoice. A photo of a paper invoice sent on WhatsApp is not an e-invoice, however clear it is, and the right request to the supplier is the electronic copy issued from its system.

Issuing the invoice and submitting it to ZATCA for clearance are obligations of the supplier who issues it, not of the company that receives it. Your role as the buyer is to check the invoice, record it and keep it. You may also receive a manual or uncleared invoice because the supplier's system failed or ZATCA's platform did not respond. The guideline describes these cases: the invoice is treated as a tax invoice until the supplier issues the compliant invoice once its system is fixed or the connection is back, and it states that the manual invoice does not qualify for VAT deduction. In practice, you record such an invoice with a status of awaiting the compliant version, follow up with the supplier until it arrives, then keep the two linked together.

One more text is worth knowing, without reading more into it than it says. Clause 1(3) of ZATCA's resolution makes e-invoices the tax invoices relied on for exercising the right to deduct, and makes a valid deduction conditional on the invoices having been cleared or reported to ZATCA under the integration procedures, but only from a date set by a later decision of ZATCA's Governor. Follow ZATCA's announcements on this, and ask your tax adviser how it affects your company.

Corrections by note, and six years of keeping

If an invoice arrives with your company's name wrong, an old address, or a VAT number that is not yours, do not ask the supplier for an amended copy. Article 54(3) allows a supplier that finds an error in its own details or the customer's details on an invoice to give the customer a debit or credit note, as the case may be, that corrects that invoice's details, with both supplier and customer keeping the invoice and the note together. Article 54(4) requires the note to refer clearly to the invoice or invoices it relates to. We covered the note from the seller's side in returns after the National Day rush. Here the receiver only needs to know what to ask for: a note linked to the original invoice number, not an amended copy of the same invoice.

When the value of the supply itself changes after the invoice, through a return the supplier accepts, a later price reduction, or part of the supply being cancelled, Article 40(6) requires a VAT-registered customer to correct its input VAT in the tax period in which the credit or debit note was issued. So the note is recorded in your system with its issue date and linked to its invoice, so that its effect lands in the right period, not in whichever period someone happens to notice it.

Then keeping. Article 66(1) requires invoices, records and accounting documents to be kept for at least six years from the end of the tax period they relate to, with a longer period, set in the same paragraph, for records of capital assets such as factory equipment. Article 66(3) requires them to be kept in the Kingdom, on paper or electronically under the conditions it sets. An e-invoice is kept as it arrived: the XML file, or the PDF/A-3 with everything embedded in it, not a screenshot and not a printout that was scanned back in. The original file is what carries the invoice's full data, and its stamp if it was cleared, and it is what you will need if someone asks about the invoice years later.

What is not deductible as a rule: a question for the purchase request

Some purchases, as a rule, do not allow their input VAT to be deducted however complete the invoice is. Article 50 lists goods and services that are not treated as bought for the purposes of the economic activity, so their VAT may not be deducted unless the taxable person supplies them on as taxable supplies. They are:

• Entertainment, sporting or cultural services, and attending events of an entertainment nature.
• Hospitality and food and drink catering services, unless the business has a statutory obligation to provide them to its employees at the workplace.
• Insurance or healthcare for the business's employees and their dependants, unless it has a statutory obligation to provide them.
• Buying or leasing restricted vehicles, insuring, repairing and maintaining them, and the fuel used in them. The same article defines a restricted vehicle and excludes several categories, including trucks, cranes and heavy equipment used exclusively for business purposes, and vehicles used exclusively for business purposes without being available for private use.
• Any goods or services intended for personal use or for purposes other than the business.

This classification does not have to wait for the invoice. When a property manager orders hospitality for a meeting with owners, or someone requests maintenance for an administration car, the purchase request already knows what is being bought and why. If the request carries a spend category from the start, the invoice reaches accounts already flagged as belonging to a category that needs a closer look, instead of whoever prepares the return discovering it at the end of the period. The flag is an alert, not a ruling: the exceptions for statutory obligations, for vehicles and for onward supply mean the same purchase can be treated differently from one company to another, and the final classification of each case is for your tax adviser.

One inbox for supplier invoices

All of this is hard to apply when invoices arrive in five places: the accountant's email, a WhatsApp chat with the purchasing officer, an envelope the driver hands to the warehouse, a file on the site engineer's phone, and a paper copy in the hotel office. Email and WhatsApp are good tools for talking to suppliers, but they do not work as an invoice register, because nothing in them stops an invoice from being duplicated, lost or left unchecked. The fix is one address that suppliers send invoices to, with everything that arrives elsewhere forwarded there, and the same checks run on every invoice:

• Reading the file instead of retyping it. An invoice that arrives as XML, or as a PDF/A-3 with the XML embedded, carries its data in structured form inside the file: the VAT numbers, the lines and the amounts. The system reads them directly instead of someone retyping them, so transcription errors disappear at the source.
• Checking both numbers. The supplier's number is compared with its approved record and your company's number with its own, and any difference stops the invoice and sends a question to the supplier.
• Checking the required details. The fields Article 53 requires are present, the VAT is calculated at the stated rate, and the total equals the sum of the lines.
• Catching duplicates. The same serial number from the same supplier is stopped at entry, as in part four.
• A clear status for every invoice: complete, awaiting a correcting note, awaiting the compliant version after a manual invoice, or in a category that needs the adviser's view. No invoice sits halfway without anyone knowing why.

In spare parts and inventory across sites and technician vans we said in a single line what a supplier invoice needs for its input VAT to be deducted, and this part has set out what the texts actually say. This list is what turns all of that into daily work the system does as each invoice arrives, rather than a review someone remembers at the end of the period.

The Origami view

When we build this stage for a company, we start with simple questions: where do supplier invoices arrive today, who opens them first, and how many days do they sit before reaching the person who records them? Then we bring them into one inbox and have the system read the e-invoice file, check both VAT numbers, the required details and duplicates, and link the invoice to its purchase order, its receiving record and any note issued against it later.

We put the spend category on the purchase request from the start, so the invoice reaches accounts already flagged if it falls in a category that needs a closer look, and we leave tax decisions to the people qualified to make them: the system prepares the documents and shows the status, and the tax adviser decides. All of it connects to the accounting system the company already runs on rather than replacing it. This is part of the custom systems we build, described in our services.

An exercise for this week: the ten invoices, a third time

This exercise needs no new tool, and the finance manager can run it with whoever receives invoices:

• Go back to the ten invoices from part one's exercise, and add the supplier invoices you recorded last month if you can.
• Write down where each invoice came from: email, WhatsApp, paper by hand, or an electronic file from the supplier's system. Is what you hold the original file, or a photo, or a printout scanned back in?
• Check the details: does the supplier's VAT number match its record? Is your company's number shown and correct? Is its name as in its commercial registration? Are the quantity and description clear, and is the VAT amount shown in riyals?
• If the invoice carries a QR code, scan it with ZATCA's app, and compare what it shows with the invoice.
• Flag the invoices that fall in the Article 50 categories or that you suspect might, and put them on a list for your tax adviser rather than deciding them alone.

The exercise produces two numbers: how many invoices you do not hold the original file for, and how many are missing a detail or show a wrong number. If the first is larger, the problem is the route invoices take to reach you, not the invoices themselves, and the fix is one address every supplier knows. If the second is larger, start with the suppliers where the same error repeats, because getting it fixed once in their system saves asking for a note every month.

In the next part

The invoice now matches the purchase order and the receipt, carries every required detail, and is kept in its original form. The next part moves to payment itself: how to pay matched invoices by due date in one scheduled batch approved once, how to confirm any request to change a supplier's bank details, how an unpaid balance affects input VAT after twelve months, and how to reconcile each supplier's statement every month.

Sources

• VAT Implementing Regulations, Zakat, Tax and Customs Authority (official Arabic text) — Article 40(6) (the customer corrects its input VAT in the period the credit or debit note is issued); Article 49(7) and (8) (the evidence required to deduct and the alternative evidence, and deduction in a later period within five years); Article 50 (goods and services deemed received outside the economic activity); Article 53(1), (5) and (8) (the simplified invoice between businesses under 1,000 riyals, the details of a tax invoice, and the details of a simplified invoice); Article 54(3) and (4) (correcting an invoice's details with a note that refers to it, both kept together); and Article 66(1) and (3) (keeping records for at least six years, in the Kingdom).
• Resolution on the controls, requirements, technical specifications and procedural rules for implementing the E-Invoicing Regulation, Zakat, Tax and Customs Authority (official Arabic text) — Clause 1(3) (a valid deduction tied to clearance or reporting from a date set by a later decision); Clause 2 (XML or PDF/A-3 format, clearance and the cryptographic stamp); Clause 3 (sharing the tax invoice electronically with the customer, and the QR code); and Annex 2, field 5.3 of the tax invoice (the VAT registration number of a registered customer).
• Detailed Guidelines for E-Invoicing, Version 2 (May 2023), Zakat, Tax and Customs Authority (Arabic) — a scanned paper invoice is not an e-invoice; no set format for phase one invoices; clearance of phase two invoices and sharing them as XML or PDF/A-3; e-invoicing system outage scenarios and the manual invoice; and verifying the QR code with ZATCA's app.
• VAT registration check, Zakat, Tax and Customs Authority — search by VAT number, commercial registration number or VAT certificate number; open to taxpayers and the public.