A detailed, keyword-focused guide to input VAT on advances, VAT on deposits, tax point rules, Saudi VAT compliance, e-invoicing (FATOORA) implications, and documentation requirements under the Zakat, Tax and Customs Authority (ZATCA) framework—tailored for corporate taxpayers in Saudi Arabia.
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1) Why advances vs. deposits matter for Saudi VAT
For VAT, advances generally trigger a tax point (time of supply) when payment is received and a compliant tax invoice is issued. Deposits that are refundable and held as security (no supply yet) typically do not create a tax point until they become applied/forfeited. Correct classification determines whether the buyer can claim input VAT now or later.
| Item | Advance (prepayment) | Deposit (security) |
|---|---|---|
| VAT tax point | On receipt of payment (if linked to a supply) and tax invoice issued | No tax point until applied/forfeited or supply occurs |
| Supplier invoice type | Compliant VAT tax invoice for the advance | Receipt/acknowledgment; VAT invoice only when applied |
| Buyer input VAT claim | Permitted in the period of the tax invoice (subject to general recovery rules) | Not permitted until deposit is applied/forfeited and VAT invoice is issued |
2) Conditions to claim input VAT on advances
- Valid tax invoice meeting ZATCA requirements (supplier VAT number, buyer details where required, tax amount, description, QR for e-invoices, etc.).
- Advance linked to a taxable supply intended for the buyer’s economic activity (not private use).
- VAT registration of both supplier (in KSA) and buyer (where necessary for recovery rules).
- Invoice posted in the same VAT period you intend to recover; if late, claim in next eligible period per records policy.
- Apportionment for mixed-use activities (exempt vs. taxable) using a reasonable method consistent with Saudi VAT rules.
3) Practical examples (Saudi scenarios)
A) Advance for machinery purchase
Buyer pays SAR 200,000 + VAT as an advance and receives an e-invoice. Buyer may claim input VAT in that period, subject to general recovery rules. When the final invoice is issued, the advance VAT is netted off.
B) Refundable equipment deposit
Buyer pays a refundable SAR 50,000 deposit with a receipt but no VAT charged. No input VAT claim now. If the deposit is later applied against the price, the supplier issues a VAT invoice and the buyer claims input VAT then.
4) E-invoicing (FATOORA) essentials for advances
- Standard e-invoices are required for B2B advances; ensure QR code, UUID, and mandated fields are present.
- Credit/debit notes must be e-issued for cancellations, refunds, or price changes affecting the advance.
- Match your VAT returns to e-invoicing data to avoid ZATCA reconciliation queries.
5) Special situations and adjustments
- Cancellation/refund: If an advance is refunded before supply, supplier issues a credit note; buyer must reverse any input VAT previously claimed.
- Price change: Issue debit/credit note to adjust VAT; buyer adjusts input VAT accordingly in the relevant period.
- Milestone contracts (construction/IT): Each milestone advance with VAT invoice allows recovery then; retention amounts typically taxed upon certification/payment per contract terms.
- Foreign currency advances: VAT amount should be shown in SAR; use official exchange rate on tax point to avoid discrepancies.
- Deposits forfeited: If kept by the supplier as consideration (e.g., no-show fees), VAT becomes due; buyer can claim input VAT only when a VAT invoice is issued for that forfeiture (and if used for taxable activity).
6) Documentation checklist for input VAT claims
| Document | Advance | Deposit |
|---|---|---|
| Compliant VAT e-invoice (supplier) | Required at receipt of advance | Required only when applied/forfeited |
| Payment proof (bank advice) | Recommended | Recommended |
| Contract/PO linking to supply | Strongly recommended | Strongly recommended |
| Credit/debit notes (if any) | Adjust claim accordingly | Adjust claim when deposit becomes taxable |
7) Common pitfalls (and how to avoid them)
- Claiming input VAT from a proforma or non-compliant invoice—wait for the proper tax invoice.
- Confusing a refundable deposit with a taxable advance—no claim until deposit is applied.
- Missing credit note reversals after cancellations—regularly reconcile vendor statements and return periods.
- Ignoring apportionment for mixed activities—apply and document a consistent allocation method.
- Not aligning VAT returns to FATOORA data—use e-invoicing exports to reconcile before filing.
8) Step-by-step process to claim input VAT on advances
- Confirm if payment is an advance (prepayment for a supply) or a deposit (security).
- For advances, obtain a compliant VAT e-invoice at receipt; verify supplier VAT number and QR code.
- Record the invoice in your VAT ledger for that period; apply apportionment if needed.
- Match payment advice and contract/PO to the invoice; file the input VAT in the relevant VAT return.
- For deposits, do not claim until the supplier applies the deposit and issues a tax invoice; then claim.
- If the transaction is cancelled or changed, process the credit/debit note and adjust your input VAT in the next return.
9) Quick timeline example
- 15 Sep: Advance paid; supplier issues VAT e-invoice → buyer can claim input VAT in Sep/quarter.
- 30 Oct: Supply delivered; final invoice nets the advance; no double claim.
- 10 Nov: Contract cancelled; supplier issues credit note → buyer reverses prior input VAT in Nov return.
10) FAQs for Saudi VAT on advances & deposits
Can I claim input VAT with a receipt but no tax invoice?
Is a refundable deposit ever subject to VAT?
What if we are partially exempt?
Following these Saudi-specific practices will help corporate taxpayers maximize legitimate input VAT recovery on advances, avoid disallowed claims on deposits, and stay aligned with ZATCA and FATOORA compliance.
