Credit Note, Debit Note and Voucher under KSA VAT

The Value Added Tax (VAT) rules in Saudi Arabia provide specific guidelines when suppliers need to issue credit notes and debit notes in Saudi Arabia (KSA). The suppliers often also give vouchers with either a monetary value or a claim to certain benefits. In all such cases, it is essential to adhere to the guidelines issued by the authority.  

This blog will discuss the circumstances when a supplier needs to issue a credit note in KSA or a debit note and understand the rules applicable to giving the vouchers. 

What is a credit note? – definition, use, example and more

A credit note is issued by a supplier when the amount charged in the invoice is more than the actual value of the supply made to the customer. 

As per Article 40 of the VAT implementing regulations, in the following circumstances, a credit note should be issued by the supplier where the invoice value is more than the true value of the supply:

• Cancellation or termination of the supply after the completion of the original supply or sale.
• The nature of the supply changes materially, and the VAT charged also varies as a result. 
• For any reason, the agreed consideration for the supply is changed, including that an additional discount is offered post sales of goods or services.
• Customer returns goods or services to the supplier, and the supplier confirms or accepts such return.

However, the supplier must mention a reference number for the original tax invoice. If there is no previous tax invoice, the credit note cannot be issued.

Example of a credit note

PSF Company LLC issued a tax invoice for selling the office chairs to the customer on 23rd July 2021 for SAR 5,000. However, the customer reviewed the pricing of all the chairs and found out that three chairs out of 10 chairs were priced wrongly since the material used was different—the difference resulted in the actual value of the supply of SAR 3,600.

Hence, PSF Company LLC will issue a credit note for SAR 1,400 to the customer for the difference arising due to the change in consideration of the chairs.

A single credit note for multiple tax invoices

A taxpayer may issue a single credit note for adjustments to be made for multiple tax invoices. He must clearly state the original tax invoice references in the credit note issued. 

Due date of issuance of a credit note

A credit note must be issued within 15 days after the end of the month in which the adjustment or change occurred. 

Content of a credit note

A supplier must mention the following details on the credit notes:

1. Reference number for original tax invoice sequential number
2. Date of issue of a credit note
3. Adjusted value of supply
4. Original VAT charged with regard to the adjustment
5. All other details required for corresponding tax invoices

What is a debit note? – meaning, use, example and more

A supplier issues a debit note when the amount charged in the invoice is less than the actual value of the supply made to the customer. 

Article 40 of the VAT implementing regulations prescribes the same circumstances under which a debit note in KSA must be issued as stated for a credit note. 

Example of a debit note

PSF Company LLC issued a tax invoice for selling the office chairs to the customer on 23rd July 2021 for SAR 5,000. However, the supplier reviewed invoicing and found that he missed applying the revised price for three chairs. The revision results in additional VAT being charged, and the supplier must issue a debit note to the customer for the difference amount. 

Single debit note for multiple tax invoices

A taxpayer may issue a single debit note for adjustments to be made for multiple tax invoices. He must clearly state the original tax invoice references in the debit note he issues. 

Due date of issuance of debit note

A debit note must be issued within 15 days after the end of the month in which the adjustment or change occurred. 

Content of a debit note

A debit note should contain the following details:

1. Reference number for original tax invoice sequential numbers
2. Date of issue of debit note
3. Adjusted value of supply
4. Original VAT charged with regard to the adjustment
5. All other details required for corresponding tax invoices

Vouchers – Everything to know

• Vouchers in KSA are instruments that oblige the supplier to accept it as a consideration or partial consideration for the supply of goods or services by him. Such vouchers or related documents must include the nature of goods or services or the supplier’s identity.
• VAT is not charged upon issuing or supplying a voucher as it is not considered supply under VAT KSA law.
• However, when a customer redeems the voucher in KSA as a consideration for the goods or services, the VAT applies to the underlying goods or services. Moreover, when a customer redeems a voucher, VAT must be charged on a consideration that is more than the face value.  

Comparison of a credit note, debit note and voucher