VAT in Procurement
VAT fundamentals for procurement teams
Value Added Tax (VAT) is an indirect tax on most goods and services in Saudi Arabia at 15%. For procurement, understanding how it works is both operational and legal.
Who is responsible for VAT?
- Vendor: Collects tax from the buyer and remits to ZATCA
- Buyer: Pays VAT to the vendor and may recover it as input VAT
- ZATCA: Regulator responsible for collection and oversight
Input VAT vs. output VAT
Input VAT: VAT paid on purchases of goods and services. It can generally be deducted from VAT payable.
Output VAT: VAT charged on sales of products and services.
Net payable to ZATCA = Output VAT − Input VAT
Calculating 15% VAT on purchases
Basic calculation
| Line | Amount |
|---|---|
| Purchase value (excl. VAT) | SAR 100,000 |
| VAT (15%) | SAR 15,000 |
| Total incl. VAT | SAR 115,000 |
Special cases
Exempt supplies: Some items are exempt (e.g., certain licensed financial services and some government services). Validate the tax treatment of each purchase.
Zero-rated supplies: Exports and certain international transport may be zero-rated. The buyer may pay no VAT while the vendor can still recover input VAT.
Imports: On imports, VAT is typically calculated on the value of goods plus customs duties, freight, and insurance.
Reverse charge: For certain purchases from non-resident vendors, the buyer may account for VAT and remit it under reverse-charge rules.
E-invoicing requirements
What is an e-invoice?
An e-invoice is issued and stored in a structured electronic format through an electronic system. Handwritten invoices or simple scans do not qualify as compliant e-invoices.
Mandatory invoice data
Each e-invoice should include:
| Field | Example |
|---|---|
| Vendor name | Advanced Supplies Co. |
| Vendor VAT number | 300XXXXXXXXX0003 |
| Invoice date | 2026/04/01 |
| Sequential invoice number | INV-2026-0042 |
| Description of goods/services | Portland cement — 500 bags |
| Quantity and unit price | 500 × SAR 25 |
| Taxable amount | SAR 12,500 |
| Tax rate | 15% |
| Tax amount | SAR 1,875 |
| Total incl. VAT | SAR 14,375 |
| QR code | Encoded invoice data |
Types of e-invoice
Tax invoice: B2B invoice with full mandatory fields.
Simplified tax invoice: B2C invoice with fewer fields and a mandatory QR code.
Credit note: Issued for returns or adjustments to a prior invoice; must reference the original invoice.
ZATCA Phase 2 (integration and clearance)
What changed in Phase 2?
Phase 1 focused on generating e-invoices. Phase 2 adds:
- Direct integration with the ZATCA platform (Fatoorah) for real-time transmission
- Clearance / reporting: Each invoice receives a cryptographic stamp from ZATCA
- UUID: A globally unique identifier per invoice
- Digital signature: To protect integrity after issuance
- Enhanced QR code: Richer encoded data
Rollout waves
Phase 2 was rolled out in waves by revenue band (illustrative timeline as published by ZATCA):
| Wave | Category | Timing |
|---|---|---|
| First | Revenue above SAR 3 billion | January 2023 |
| Second | Revenue above SAR 500 million | July 2023 |
| Third | Revenue above SAR 250 million | October 2023 |
| Subsequent | Remaining entities | Phased through 2024–2026 |
System requirements for Phase 2
Your solution should support:
- API connectivity to ZATCA
- Digital signature and cryptographic stamping
- UBL 2.1 XML as specified
- Retention of invoices for at least six years
- No post-issuance alteration of cleared invoices
How procurement systems support tax compliance
Linking procurement and tax
An integrated procurement system supports compliance by:
When issuing a PO:
- Automatic 15% VAT calculation
- Validation of vendor VAT number
- Tax classification per line (standard, exempt, zero-rated)
When receiving invoices:
- Match invoice VAT to the correct calculation
- Validate e-invoice data and structure
- Reject invoices that do not meet ZATCA rules
When preparing returns:
- Aggregate input VAT from purchases automatically
- Reporting that supports return preparation
- Audit trail for any ZATCA review
Common procurement tax risks
Accepting incomplete invoices: Missing VAT number or mandatory fields can block input VAT deduction.
Amount mismatches: Differences in VAT between PO and invoice create accounting and compliance issues.
Late filing / payment: Missing deadlines can lead to penalties (historically up to a significant percentage of tax due — always confirm current rules with ZATCA).
Buying from non-registered vendors: Input VAT may not be recoverable where the supplier is not properly registered.
Tax reporting
Core reports
Input VAT report: All purchases and VAT, by period, vendor, and category.
VAT reconciliation: Compares input VAT (purchases) and output VAT (sales) to determine payable or refundable amounts.
Rejected invoices report: Invoices failing tax rules, with reasons.
How Waqti supports tax compliance
Waqti is designed to support ZATCA-aligned procurement operations:
- Automatic 15% VAT on POs where applicable
- Vendor VAT validation at onboarding and qualification
- Tax matching between POs and received invoices
- Ready-made tax reports to support return preparation
- E-invoicing support aligned with Phase 2 expectations
- Comprehensive audit trail for tax reviews
Get started
Strengthen tax compliance with Waqti — automated VAT, e-invoice-ready workflows, and ZATCA-oriented reporting.