Deductions, penalties and charges on an invoice: real cases

A tax invoice cannot carry a line with a negative value. When you agree a discount or a penalty with your customer, record it as a document deduction with its reason. When you add a charge such as delivery, record it as a document addition. Anything that arises after the invoice is issued goes on a credit note.

Quick guide

Ask two questions: did it arise before or after the invoice was issued? And who is charging whom?

Deduction and penalty cases

Figures are examples, in SAR with 15% VAT.

A project supplier with a late-delivery penalty

A company supplies electrical materials to a contractor for SAR 100,000. The contract sets a penalty of 0.1% for each day late. Delivery was 10 days late, and both sides agreed the penalty before the invoice was issued.

Many people type the penalty as a line of −1,000, which ZATCA rejects. The right way: the lines as they are, then a document deduction with reason “Late delivery penalty” and details “10 days × 0.1%”.

VAT is worked out after the penalty, so the contractor pays no VAT on money they do not pay.

A food supplier with a quality penalty

A factory delivers a shipment to a catering company for SAR 30,000. On receipt, part of it does not meet the specification, and the contract sets a 5% penalty.

Choose “Quality penalty”, enter 5 as a percentage, and in the details write “Receiving report 412”. The penalty comes to SAR 1,500: SAR 28,500 before VAT, VAT 4,275, total SAR 32,775.

A wholesaler giving a volume discount

A distributor gives a large grocery 5% off because its order passed SAR 20,000. This is the most common case and has a shortcut: type 5% in the Discount field of the totals bar under the lines. The invoice shows a “Discount” row of SAR 1,000 and a total of SAR 21,850 including VAT.

The shortcut and other deductions can sit on the same invoice: the volume discount in the bar, the late-delivery penalty in the deductions section.

Addition and charge cases

A furniture showroom that delivers and installs

A customer buys a sofa for SAR 4,000 and a table for SAR 2,000, and asks for delivery and installation. These are not products you sell but charges on the whole order. Add them from the “Doc. addition (+)” tab: “Delivery” 150, then “Installation” 300.

Charges are taxed like the lines. For a charge not on the list, choose “Other charge” and say what it is, such as “One month storage”.

When is a charge a line instead? When it is a service you sell in its own right and price in your products, such as an annual maintenance contract: add it as a normal line.

A medical supplier with two VAT rates

A supplier sells a pharmacy equipment for SAR 6,000 at 15% and medicines for SAR 4,000 at zero rate. They agree a SAR 500 discount and add SAR 200 delivery.

• The discount is shared out for you between the two rates by their size: 300 from the equipment, 200 from the medicines. There is nothing to work out.
• The addition asks for its VAT rate because the invoice has more than one. Choose the rate delivery takes in your business, here 15%, and check with your tax adviser if unsure.

Subtotal before VAT SAR 9,700, total SAR 10,585. Had the discount been a percentage, the same percentage would come off each group.

What is not a document deduction

A penalty that arises after the invoice is issued

A maintenance company issued a monthly invoice for SAR 50,000 plus VAT. A week later the customer applied a SAR 2,000 penalty for a slow response to a call-out.

An issued invoice cannot be edited or cancelled: it has gone to ZATCA. Create a credit note from it for SAR 2,000 with the reason “Penalty for late response to call 88”. The customer gets SAR 2,300 back including VAT, and your output VAT falls by SAR 300.

The simple rule: what was agreed before issuing goes on the invoice; what came after goes on a credit note.

Fees your customer charges you

A retail chain asks its suppliers for a SAR 5,000 “supplier registration fee” and takes it out of the first payment. It looks like a deduction, but it is really a service the chain sells to you.

• Your invoice to them stays at the full value of the goods, with no deduction.
• The chain issues you an invoice for the fee and its VAT.
• The two amounts are netted off at payment, not on the invoice.

The same goes for listing fees, shelf-display fees and admin fees. If you are not sure whether it is a discount or a separate service, ask your tax adviser.

The negative line

ZATCA rejects any line with a negative quantity or price, whatever the reason. Use the matching method from the quick guide instead.

Applying it on the invoice

On the invoice screen, above the add-line box, there are three tabs: “Line item”, “Doc. deduction (−)” and “Doc. addition (+)”.

1. Add the lines first, at their full prices.
2. Open the deduction or addition tab.
3. Choose the Reason from the list.
4. Enter the Value before VAT, as an amount or a percentage of the lines.
5. Add Details if you like, such as the contract number or the days late. They print next to the reason.
6. On an invoice with more than one VAT rate, an addition asks for its rate.
7. Press “Add deduction” or “Add addition”.

The “Deductions on the document” or “Additions on the document” section appears under the lines as soon as you add the first one. From there you edit or remove any of them before issuing, and the totals update as you go.

For an ordinary commercial discount you do not need the tabs: the Discount field in the totals bar is enough. A credit note created from an invoice copies its deductions and additions as they are, so you change only what you need.

Rules that protect you

• The invoice never goes below zero. If deductions exceed the lines and additions, alFatora stops you and tells you the most you can deduct. A penalty larger than the invoice goes on a credit note against an earlier invoice, or a separate claim.
• The value is always before VAT. alFatora works out the VAT after the deduction or addition.
• A percentage is taken of the lines after their own discounts, not of the total including VAT.
• Every deduction and addition has a written reason. With “Other deduction” or “Other charge” you write it yourself, because it prints on the invoice and goes to ZATCA.
• No edits after issuing. Any reduction after that goes on a credit note.

What your customer sees

Deductions and additions print in the totals table, one row per reason, marked − or +, in Arabic and English. The contractor in the first case sees “− Late delivery penalty: 10 days × 0.1%” for SAR 1,000, not an unexplained “Discounts” figure. That saves them a question, and lets their accountant match the invoice to the contract.