Cancelling an issued invoice before ZATCA integration: why not delete it, and what to do instead

You issued an invoice, then the customer cancelled the order, or it went out in another customer's name, or it was issued twice. Businesses not yet integrated for Phase 2 often ask: since we don't send invoices to the Authority, can we just delete it? No. Cancelling is possible, but the only way to do it is a credit note that references the original invoice, in Phase 1 just as in Phase 2.

Phase 1 forbids deleting too

Phase 1 (generation) has applied to every VAT-registered business since 4 December 2021, whether or not its integration wave has come. ZATCA's e-invoicing FAQ lists functions an invoicing system must not have from this phase on, including:

• tampering with e-invoices, their associated notes or their logs, that is, editing or deleting them after issue;
• multiple e-invoice number sequences;
• uncontrolled access, such as anonymous use or no session management.

So a system that lets you "delete" or "void" an issued invoice without a trace is not compliant to begin with, even if it never connects to the Authority. A deleted invoice also leaves a gap in the numbering that any auditor will see, and it is one of the violations ZATCA looks for.

The lawful way: a credit note

The VAT Implementing Regulations list the events that require an adjustment to the tax charged, the first being cancellation of the supply in whole or in part, and require the supplier in these cases to issue a credit note that carries:

• an explicit reference to the original invoice's number and date;
• the reason, such as "order cancelled" or "issued in error";
• the amount and VAT being reversed, in full or in part;
• a QR code when the original is a simplified invoice.

The deadline: under the amendments approved by ZATCA's Board on 19 November 2024, the note is due within 15 days after the end of the month in which the event occurred. An order cancelled on 10 March needs its credit note by 15 April.

The tax effect: the invoice and the note both stay in your records. The note reduces output VAT in the return for the period in which it is issued, so there is no earlier return to amend, and the net is zero. If the buyer is a business, it reduces the matching input VAT on its side.

The common cases, and how to handle each

The last row matters: until an invoice has its number and date and has reached the customer, it is a draft, and reviewing it before issue saves most credit notes.

Invoicing before payment? Use a pro forma

Many cancellations have one cause: a business issues a tax invoice so the customer can approve or transfer the payment, the deal doesn't close, and the invoice has to be cancelled. A tax invoice is the wrong document here, because it records a sale that hasn't happened yet.

The right document at that stage is a pro forma invoice: it looks like an invoice but it is an offer with no tax effect, so if the deal falls through there is nothing to cancel and no note to issue. Once you receive the payment or deliver the goods, issue the tax invoice, because VAT falls due at the supply or at receipt of the consideration, whichever comes first.

Phase 1 and Phase 2: what changes?

The rule is the same in both phases; what changes is that in Phase 2 the Authority keeps a copy of every invoice and note. A business that gets used to credit notes now moves into Phase 2 without changing how it works.

In alFatora

An issued invoice cannot be edited or deleted in alFatora, and cancelling one is a single step that keeps every rule above:

• "Cancel invoice": once turned on in Settings, you type the reason and alFatora issues a credit note for everything left on the invoice, line by line, for the reason "cancellation of the supply", and sends it to ZATCA, or keeps it with the invoice in Phase 1. The invoice stays issued as it was and shows as Cancelled in the list. Nothing is deleted.
• The note is applied to the invoice automatically, so it no longer shows as unpaid or overdue; anything the customer paid on it stays as their credit, to set against another invoice or refund.
• A closed period is never touched: an invoice from a closed month or year is cancelled today, and the reversal comes off this period's revenue, not sales returns.
• The sales order or quotation can be invoiced again, with its quantities and its share of the discount.
• The customer statement: a setting leaves cancelled invoices and their notes off it; the balance is the same either way, and the books always show both.

For a partial note, a return or a discount, "Issue a credit note" starts from what is left on the invoice and you lower what you need. Drafts you can edit or delete as you like, and a pro forma turns into a tax invoice in one click when the payment arrives.