ZATCA Third-Party Invoices

In Saudi Arabia, the Zakat, Tax, and Customs Authority (ZATCA) manages tax rules, including Value Added Tax (VAT) for businesses. According to VAT regulations, companies can allow a third party, like an accounting firm or tax agent, to issue invoices on their behalf in certain situations. This is called third-party invoicing.

Key Requirements for VAT Compliance in Third-Party Invoices

1. Registration and Compliance:

The third-party issuer (like an accounting firm) must be registered with ZATCA and authorized to manage VAT-related tasks for the business.
When the third-party issues invoices on behalf of the business, they must make sure the VAT calculations are accurate and follow the current VAT rate in Saudi Arabia, which is 15% for most goods and services.

2. Invoice Details:

According to ZATCA's VAT rules, invoices issued by a third party must include these details:

Seller Information: The seller’s name, address, and VAT registration number.
Buyer Information: The buyer’s name and address (for business-to-business sales).
Transaction Details: A clear description of the goods or services, the quantity, unit prices, and the VAT rate.
VAT Amount: The VAT amount charged, based on the VAT rate for the items or services.
Date of Issue: The date the invoice was created.

3. Tax Liability:

The seller is always responsible for paying the VAT on the goods or services they sell, even if a third party creates the invoice for them. The third party cannot take over this responsibility unless they are legally authorized to act as the seller’s tax representative.

4. Invoicing in Different Scenarios:

B2B Transactions: In business-to-business transactions, the third-party issuer must ensure that the VAT invoicing complies with business-to-business VAT requirements.
B2C Transactions: For business-to-consumer transactions, the third-party invoicing must comply with VAT rules for retail or direct sale.

Calculating VAT on Third-Party Invoices

A company, Sony Electronics, sells an Air Condition to a business customer, ABC Enterprises, for SAR 500. Sony Electronics has hired an accounting firm, Leeway Accounting, to issue invoices on their behalf.

The VAT rate in Saudi Arabia is 15%.
The invoice is being issued by Leeway Accounting on behalf of Sony Electronics.
The total sale price (before VAT) is SAR 500.

Calculate the VAT Amount

VAT Amount= Sale Price x VAT Rate = 500 × 0.15 = 75
Total Invoice Amount = Sale Price + VAT Amount = 500 + 75 = 575

➨ VAT is calculated based on Fair Market Value (FMV)