Advance and Prepayment Invoices in KSA: A Comprehensive Guide

Managing customer advances is pivotal for any enterprise, especially given the intricacies of the Sales Management process. With companies routinely receiving advances for the delivery of goods or services, understanding the nuances of different advance types becomes essential. These can be categorized as:

Order-specific advances.

Adhoc advances (not order-specific).

Milestone-based advances (aligned with payment schedules in invoices).

It is vital that businesses adjust these advances in subsequent Sales Invoices or Direct Finance invoices. As per the ZATCA guidelines, VAT accrued in these advances must be promptly declared post-transaction. A strategic approach ensures businesses dont inadvertently pay double taxes: once for the advance and again for the invoice.

ZATCA E-invoicing Solution

ZATCA's Phase 2 e-Invoicing offers businesses a robust solution to seamlessly manage their advances. Among the available options for advance or prepayment adjustments in invoices include:

Single advance/prepayment linked to one invoice.

Single advance/prepayment distributed across multiple invoices.

Multiple advances/prepayments apportioned over various invoices.

Several advances/prepayment tied to a single invoice.

It is vital that businesses adjust these advances in subsequent Sales Invoices or Direct Finance invoices. As per the ZATCA guidelines, VAT accrued in these advances must be promptly declared post-transaction. A strategic approach ensures businesses dont inadvertently pay double taxes: once for the advance and again for the invoice.

The Process at a Glance

When an advance invoice is generated in the ERP or Source system, its forwarded to ZATCA as a standard Tax invoice but tagged as Advance (with a fixed Invoice Type Code (BT-3) value “386”). This action registers the VAT amount in ZATCAs system for the specific business and customer. 2. When the actual invoice is later created, its sent to ZATCA as either a Tax or Simplified invoice but categorized as “Invoice” (fixed Invoice Type Code (BT-3) value “388”). Along with this, the advance data must also be transmitted. ZATCA expects details such as:

Tax category (BT-1) Advances or prepayment can be from domestic customer, international customer or even intercompany. The types given areS StandardZ Zero VATE ExemptO ExportIt is mandatory to provide the above information

Advance or prepayment number and UDID Invoice number of the advance received as in ERP systemUDID of this particular advance that was previously sent to ZATCA for approval

Advance Issue date in UTC format

Advance amounts (Net, VAT, and Gross) that was previously sent to ZATCA

VAT rate and currency specified during advance

It is crucial that the total advances adjusted in the invoice match the value provided in the XML sent to ZATCA, termed “cbc:PrepaidAmount” in ZATCAs glossary.

Key Checks by ZATCA

Ensure the invoice type is not adjusted in another invoice. Adjusted transaction can only be an invoice IRN number

VAT category is mandatory to be provided to inform if the advance was for standard,export, intercompany etc.

Sum of all the prepaid net amount (advance net amount) = total prepaid amount adjusted for the invoice (cbc:PrepaidAmount). 0.01 rounding off error is allowed.

Currency of the advance transactions adjusted should be same as currency of the invoice

It is vital that businesses adjust these advances in subsequent Sales Invoices or Direct Finance invoices. As per the ZATCA guidelines, VAT accrued in these advances must be promptly declared post-transaction. A strategic approach ensures businesses dont inadvertently pay double taxes: once for the advance and again for the invoice.

Practical Business Scenario:

Issued on: 01.Mar.2023 10:00:00

Advance/Prepayment: IN23090001

VAT Category: Standard

Net amount: 60,000 SAR

VAT%: 15%

VAT amount: 9,000 SAR

Gross amount: 69,000 SAR

Sent to ZATCA and Approved

Issued on: 04.Mar.2023 10:00:00

Advance/Prepayment: IN23090002

VAT Category: Standard

Net amount: 40,000 SAR

VAT%: 15%

VAT amount: 6,000 SAR

Gross amount: 46,000 SAR

Sent to ZATCA and Approved

Issued on: 14.Apr.2023 11:45:00

Advance/Prepayment: IN23090003

VAT Category: Standard

Net amount: 80,000 SAR

VAT%: 15%

VAT amount: 12,000 SAR

Gross amount: 92,000 SAR

When the above invoice is sent to ZATCA, it should include all the information of the advances numbers.

Here there could be two scenarios

Adjust the advance/prepayment to match the invoice amount Basically, in the above scenario, IN23090003 value of 92,000 SAR will be adjusted with advance IN23090001 for 69,000 SAR and advance IN23090002 for 23,000 SAR. There will be a balance of 23,000 SAR in the advance IN23090002 This balance amount can be adjusted in the subsequent invoices again.

Adjust the advance/prepayment fully Basically, in the above scenario, IN23090003 value of 92,000 SAR will be adjusted with advance IN23090001 for 69,000 SAR and advance IN23090002 for 46,000 SAR. There will be lead to an excess VAT amount -23000 SAR declared with ZATCAIn this case, you will have to raise a Credit note for 23,000 SAR including VAT to match the VAT amount. Navigating VAT declarations with ZATCA can be complex. But imagine a world where your ERP effortlessly aligns with ZATCAs rules, where integration is swift and security is top-notch. This is not a dream; many businesses today have found a partner that fits their unique needs and offers seamless integration. For those puzzled by VAT intricacies, we at Accqrate are ready to help. The goal? Smooth operations, strong security, and peak efficiency—a vision every forward-thinking business shares.