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An issued tax invoice is never edited. When a sale changes after the invoice, a credit or debit note corrects it. Here is when each is needed, what it must contain and how it moves through your VAT return and e-invoicing.
DynamoOS team6 min read
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A credit note is the document a seller issues to reduce the value of a sale already invoiced, for example after a return or a later discount. A debit note does the opposite and increases the value, for example when a price was undercharged. Both correct the original tax invoice without changing it, because an issued invoice is never edited.
For VAT, the note is what moves the tax. A credit note lowers the seller's output VAT and the buyer's deductible input VAT; a debit note raises both. Without a note, the original invoice still stands in both sets of books, whatever was agreed on the phone.
ZATCA's guideline lists five cases where an issued tax invoice must be adjusted with a note: the supply is cancelled or suspended in whole or in part, the nature of the supply changes in a way that changes the tax, the agreed value changes, including a discount given after the sale, goods or services are returned and the seller accepts the return, or an error is found in the seller's or customer's details.
| What happened | Note to issue |
|---|---|
| Customer returns goods and you accept the return | Credit note |
| You give a discount after the sale | Credit note |
| The sale is cancelled after invoicing | Credit note |
| The price was undercharged on the invoice | Debit note |
| The customer's or your details are wrong on the invoice | A note correcting the details |
A note must relate to an earlier supply. A goodwill credit not linked to any sale, such as a holiday balance offered to all regular customers, cannot be issued as a credit note and does not change VAT.
A note must meet the same requirements as a tax invoice under Article 53 of the VAT Implementing Regulations, state clearly whether it is a credit note or a debit note, and give the serial number of the tax invoice it amends. In practice it carries the same seller and buyer details as the original, the lines being corrected, the VAT and the reason.
A credit or debit note must be issued no later than 15 days into the month following the date of the event that requires it. If a customer's return is accepted on 20 October, the credit note must be issued by 15 November. Issuing it promptly also means the customer can correct their own VAT in the right period.
A seller may issue one note that adjusts several invoices to the same customer, for example a volume rebate over a quarter. The note must then refer clearly to each invoice being adjusted and the amount adjusted on it, so both sides can trace every riyal back to a sale.
If the note is issued in the same period as the original sale, or before the return for that sale is filed, it changes the amount of that period. A credit note issued after the return for the original sale was filed goes in the adjustment column of the period in which it is issued. A debit note raises output VAT in the period of the event.
| When the note is issued | Where it goes on the return |
|---|---|
| Same period as the sale, or before that return is filed | The amount of the period |
| Credit note after the sale's return was filed | Adjustments, in the period the note is issued |
| Debit note after the sale's return was filed | The amount of the period of the event |
On the buyer's side, a registered customer who deducted VAT on the original invoice corrects their input VAT in the period the note is issued.
Notes are e-invoicing documents too. A note's type follows the invoice it corrects: a note against a standard tax invoice is cleared by ZATCA like the invoice, and a note against a simplified invoice is reported like it. Each note carries the reference number of the original invoice, or a range of numbers when it covers several invoices in a period.
The most common mistakes are editing or cancelling the original invoice instead of issuing a note, issuing a note without the original invoice's number, missing the 15-day deadline, and issuing credit notes for amounts that have nothing to do with a sale. Each one leaves the seller's and the buyer's VAT out of step.
Another is forgetting the stock side of a return. When goods come back, record them into stock at the same time as the credit note, so your stock and your sales tell the same story.
In Dynamo Finance and Dynamo Sales, a credit or debit note is created from the original invoice, so it carries the reference, the parties and the lines without retyping. Phase 2 is built into Dynamo Finance: notes are cleared or reported like their invoices, and credit notes for earlier periods go to the adjustment column of the VAT return.
An issued tax invoice is not edited. Correct it with a credit note referring to it and, where needed, issue a new invoice, as ZATCA's e-invoicing guideline describes.
Yes, for the same customer. The note must refer to each invoice being adjusted and the amount adjusted on it.
If a tax invoice was issued for the advance payment and the supply is then cancelled, a credit note against that invoice is issued, as in ZATCA's own example.
The rules in this article come from these official sources, read on the day it was published.
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