Types of Discounts or Allowances in KSA

Discount means reducing the original price by a certain percentage or amount to attract customers. All businesses give discounts, irrespective of size, to increase their sales. The seller has to mention the discount amount while raising an invoice/e-invoice. 

The Value Added Tax (VAT) law in the Kingdom of Saudi Arabia (KSA) notified the types of discounts and mandated them in the invoice format. Also, the KSA VAT law uses the term allowance for discounts.

Let’s see the types of discounts one by one.

Item-level discount

This discount is mentioned as an item-price discount in the KSA invoice format and is given at the item level. This seller can give this discount at his wish.

Example 1:

Mr Saud has a retail shop and plans to give a 5% discount on perfume to increase sales. So, whenever a person buys the perfume, Mr Saud must mention the 5% discount as an item price discount in the invoice.

Example 2:

M/s Abbas Electronic Co. Ltd mentioned below the price list that a person who buys a premium television worth 1000 riyals would get a discount of 50 riyals. Hence, if a customer buys a premium television, M/s Abbas Electronic Co. Ltd shall mention the 50 riyals discount in the item level discount while creating the invoice/e-invoice.

Invoice line-level discount

Invoice line-level allowance or discount is given at each line item level. The discount is given to calculate the value of a particular item in the line. After that, the amount is finalised for VAT calculation at the line level.

Example 3:

In continuation to example 2, M/s Abbas Electronic Co. Ltd also mentioned that if a person buys two or more premium televisions would get an additional discount of 100 riyals on the item price. So, if a person buys two televisions, M/s Abbas Electronic Co. Ltd shall mention the 100 riyals as line level discount in addition to item level discount.

The seller can give this discount only in specified cases quoting the reason code, detailed in the table below. However, it is optional for the seller to mention the same in the invoice.

Document Level Discount

This discount is given on the entire invoice amount. It is mentioned as a document-level allowance amount in the KSA invoice format.

Example 4:

In continuation to example 3, M/s Abbas Electronic Co. Ltd announced an additional discount of 90 riyals if the total value of goods sold exceeds 1500 riyals. Hence, if a customer purchases goods for more than 1500 riyals, M/s Abbas Electronic Co. Ltd shall mention the 90 riyals as a document-level discount in the invoice/e-invoice.

Also, the seller has to mention the VAT category code for document level allowance, as mentioned in the below table.