How to Adjust VAT in the Saudi Electronic Invoice Step by Step

Since the implementation of the electronic invoice system (Fatoorah) in Saudi Arabia, every business owner must pay attention to VAT details within the digital invoice. Many entrepreneurs think the process is simply entering a 15% rate and closing it, but the reality requires greater precision, especially when the invoice includes discounts or multiple services.

What is the difference between a traditional invoice and an electronic invoice?

In a paper invoice, you could manually adjust or delete the tax field, whereas in an electronic invoice, every adjustment requires documentation in the system, and no omission is accepted. The electronic invoice is sent directly to the Zakat and Income Platform and stored in a central database, meaning any error will appear in your tax reports immediately.

Step one: Register on the Fatoorah platform

Before you start any calculation, you must register your company or individual activity on the Zakat and Tax Authority website. The registration process includes uploading a copy of the commercial register, social security number, and specifying the type of activity (goods, services, or both). After approval, you receive a Fatoorah account and can access the control panel.

Step two: Set up the tax template within the system

The control panel has many sections, but the most important is the “Invoice Settings” section. Here you determine:

• VAT rate (currently 15%).
• Whether the activity is subject to exemption or a reduced rate (for example, basic medical services).
• Discount calculation method (before or after tax).

Make sure to select “Calculate tax before discount” if your business applies discounts before tax calculation; otherwise, choose “Tax on the net amount”.

Step three: Fill in the invoice details

When creating a new invoice, you will see a form containing the basic fields: customer name, commercial register number, invoice date, and description of goods or services. The two most important fields for ensuring tax accuracy are:

• Taxable Amount: the original price before any discount.
• VAT Amount: calculated automatically according to the selected rate.

Practical example: If you provide a consultancy service worth 1,000 riyals and add a 10% discount for a loyal customer, the calculation is as follows:

Amount after discount = 1,000 × (1 ‑ 0.10) = 900 riyals.
VAT amount = 900 × 0.15 = 135 riyals.
Total amount = 900 + 135 = 1,035 riyals.

If you choose “Tax before discount”, you calculate the tax on 1,000 riyals first (150 riyals), then apply the discount to the total (1,150 ‑ 115 = 1,035). The result is the same, but the calculation method appears clearly on the invoice.

Step four: Check the mandatory fields

The concept of a “mandatory field” differs between paper and electronic invoices. Fatoorah requires adding:

• Sequential invoice number (Invoice Number) – never repeated.
• Country code (SA) and the issuer’s commercial register number.
• Tax Identification Number (TIN) if the activity is subject to tax.

Ensure they are filled accurately, as any omission will lead to invoice rejection in the payment system.

Step five: Test the invoice before sending

Before sending the invoice to the customer, use the “Preview” button inside the Fatoorah control panel. It will show you a PDF version displaying all fields, including tax. Review the numbers, especially if the invoice includes multiple lines (such as products + services). For each line, the taxable amount must be clear, and tax applied at the same rate.

Step six: Send and record the invoice in your records

After approval, click “Send”. The invoice is sent to the customer via email and automatically saved in the database. The system generates a reference number (Reference ID) you can use in your accounting records to track the invoice.

Common mistakes and how to correct them

1. Entering an incorrect VAT rate: Always ensure the rate is updated according to Zakat and Tax Authority instructions. Any rate change (for example, a temporary reduction) must be updated in the template settings.

2. Incorrect discount setup: If you apply discount after tax, you will calculate tax on a higher amount than actual. Be sure to choose the discount method in settings according to your policies.

3. Missing customer tax number: In business-to-business transactions, the customer requires their VAT number to facilitate tax refund. Absence of this number may cause invoice rejection.

4. Multiple currencies: If you accept payments in foreign currency (for example, US dollars), you must convert the amount to riyals before calculating tax, and show the exchange rate on the invoice.

How is VAT reported in the monthly VAT return?

After closing each month, log in to the VAT platform and submit all issued and received invoices. The system automatically calculates net VAT payable (VAT Payable) by subtracting input tax on purchases from output tax on sales.

Illustrative example: In March, you collected 30,000 riyals in VAT on sales and paid 12,000 riyals in VAT on purchases. Net VAT due is 18,000 riyals. This amount is recorded in the return and paid within the specified deadline (usually the 15th of the following month).

Tips to avoid penalties

• Keep an electronic copy of every invoice in your system for at least five years.
• Review invoice reports weekly to ensure no tax value errors.
• Use an integrated accounting software compatible with Fatoorah (such as Odoo or Zoho) to reduce manual data entry.

Conclusion

Including VAT in the electronic invoice is not just a simple adjustment of a percentage. It requires a clear understanding of the steps, from registering on Fatoorah to setting up the template, then reviewing and sending the invoice. By following this practical guide, you ensure every invoice is valid and avoid errors that could lead to penalties or delays in tax refund.