Input VAT recovery is a crucial aspect of compliance for corporate taxpayers in Saudi Arabia. However, the Zakat, Tax and Customs Authority (ZATCA) frequently disallows input VAT claims due to avoidable errors in documentation, timing, and transaction classification. This guide explores the most common mistakes that lead to input VAT disallowance and offers practical steps to maintain compliance and safeguard your VAT refunds.
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1) Claiming VAT Without a Valid Tax Invoice
ZATCA mandates that input VAT can only be claimed against valid tax invoices containing supplier details, VAT registration number, invoice date, VAT amount, and a clear description of goods or services. Missing or incomplete invoices often result in disallowance.
How to Avoid:- Ensure all supplier invoices are VAT-compliant.
- Maintain a checklist for invoice verification before claiming VAT.
2) Late Claiming of Input VAT
Input VAT must be claimed within the specified tax period. Delays beyond the allowable period lead to forfeiture of recovery rights.
How to Avoid:- Implement monthly VAT reconciliations.
- Set internal deadlines earlier than ZATCA’s filing dates.
3) Claiming VAT on Non-Deductible Expenses
Certain expenses, such as entertainment costs or passenger vehicles not used exclusively for business, are blocked from input VAT recovery.
How to Avoid:- Review ZATCA’s blocked input VAT list regularly.
- Train finance teams on deductible vs. non-deductible expenses.
4) Incorrect Treatment of Advances and Deposits
Claiming VAT on deposits that are refundable or before the supply takes place can trigger disallowance.
How to Avoid:- Only claim VAT on non-refundable advances or when supply has occurred.
- Keep proper contracts and proof of supply dates.
5) Poor Record-Keeping
ZATCA requires VAT records to be kept for at least 6 years. Inadequate records make it impossible to substantiate claims during audits.
How to Avoid:- Digitize all VAT documentation.
- Use accounting software with VAT compliance modules.
6) Incorrect Currency Conversions
For invoices issued in foreign currency, incorrect application of the official exchange rate can lead to input VAT mismatches.
How to Avoid:- Always use the exchange rate published by the Saudi Central Bank on the invoice date.
Conclusion
Avoiding input VAT disallowance in Saudi Arabia requires proactive compliance, robust documentation, and timely action. By addressing these common pitfalls, corporate taxpayers can ensure full recovery of eligible VAT amounts and maintain smooth relations with ZATCA.
