Credit and debit notes in Saudi Arabia: correcting an invoice

Use a credit note when a correction lowers what the customer owes, and a debit note when it raises it. An issued invoice cannot be edited or deleted, so both notes are the official way to change it: they sit beside the original invoice and show what changed and why, without touching the invoice itself, leaving a clear trail for your accountant and for ZATCA.

Typical credit note cases are goods returned, an order cancelled after it was invoiced, a price charged too high, a discount agreed after the sale and an item billed twice. Typical debit note cases are a price charged too low, a delivery fee or extra work left off, and a quantity entered too low. The test is simple: did the amount owed go down or up?

A note is never a free-standing document. It points back to the invoice it corrects, by number and date, so that anyone reading it, from your accountant to ZATCA, can find the original supply. Without that link the note looks like a separate, unexplained sale or refund, and your records stop making sense. That is why the reference to the original invoice is one of the most important parts of a note.

It also gives a reason, and the reason should be specific: goods returned damaged is useful, correction on its own is not. A note can adjust the whole invoice or only part of it, so list the items and amounts that change, with the VAT on them. Each note has its own sequential number and date, like any other invoice, and the number should come from the system rather than be written by hand.

• Number and date of the original invoice
• A clear, specific reason for the note
• Items or amounts being reduced or added
• The VAT on the adjusted amounts
• Its own sequential number and date

Credit notes and debit notes are e-invoices, so they follow the same electronic rules as invoices. Under Phase 1 a note is issued and stored electronically in a structured form, with no connection to ZATCA. Phase 2 adds the connection, which applies in waves that ZATCA selects and announces, so check the announcements for your own wave, and keep each note with the invoice it corrects.

Under Phase 2 a note takes the route of the invoice it corrects. A note on a standard invoice goes to ZATCA for clearance before it reaches your customer. A note on a simplified invoice is issued at once and reported within 24 hours. Like any Phase 2 invoice, it carries its own QR code, cryptographic stamp, counter value and previous-invoice hash.

A shop returns goods you invoiced at SAR 2,000 before VAT. You issue a credit note for SAR 2,000 plus SAR 300 VAT, SAR 2,300 in all, referring to the original invoice and giving goods returned as the reason. If the shop returns only half, the note covers only that half and its VAT, nothing more.

You agreed SAR 100 a unit for 50 units but invoiced SAR 120. The overcharge is SAR 1,000 before VAT, so you issue a credit note for SAR 1,000 plus SAR 150 VAT. The customer now owes SAR 1,150 less than the invoice said, and the original invoice stays untouched.

A contractor invoices four stages of a project and forgets SAR 5,000 of agreed extra work. A debit note for SAR 5,000 plus SAR 750 VAT, SAR 5,750 in all, adds the missing amount and refers to the original invoice with extra work omitted as the reason. The figures here only illustrate the arithmetic.

A note adjusts the VAT of the original supply. For the seller, a credit note lowers the output VAT on that sale and a debit note raises it. The buyer's side moves the same way: a credit note reduces the input VAT they can recover on those purchases, and a debit note increases it. Both keep the VAT treatment of the supply they correct.

So a supply taxed at 15% is corrected at 15%, a zero-rated supply stays at 0% and an exempt supply stays exempt. Do not try to work out the rate yourself. You still file your VAT return yourself on ZATCA's portal, so ask your accountant which tax period an adjustment belongs in, and hand over the notes together with the invoices they relate to.

Most problems with corrections come from a few habits. They are easy to avoid once you know them, and each one shows quickly when an accountant or ZATCA reads your records. Compare your own routine with the list below, and go through it with whoever handles refunds and price changes in your business. They are the first to meet these cases, and putting them right early is easier than after a review.

Fatooraz issues credit notes with sequential numbering and a QR code, supports ZATCA e-invoicing requirements for Phase 1 and Phase 2 and offers a free trial in ZATCA's simulation environment, where you can practise issuing a credit note before it counts for real. You do the onboarding with ZATCA as the taxpayer. Rules change, so check ZATCA's announcements and ask your accountant before relying on this guide.

• Editing or deleting an issued invoice instead of issuing a note
• Leaving out the reference to the original invoice
• Writing a vague reason, or none at all
• Using a credit note where a debit note was needed, or the reverse
• Refunding cash or changing a price with no document