1Issue 3 | May 2026

Retrospective Discount Retrospective discounts are granted after the Customer has paid the full price of the goods or services and after the Supplier has issued the invoice. For example, retrospective discounts are granted to a Customer who pays the full amount due as stated on the invoice within a specified period, or quantity-related discounts granted when a Customer purchases certain quantities from the Supplier within a specified period. The Supplier must issue a credit note to the Customer to reflect the retrospective discount granted to the Customer. If the Supplier uses the invoice basis accounting method, the Supplier is required to adjust the amount of Output Tax previously calculated to reflect the reduction in the value of the supply. The adjustment to the Output Tax must be made in the period in which the discount is granted or the credit note is issued, whichever is earlier(25). For further details regarding credit notes and adjustments to Input Tax, please refer to the Guideline on Tax Invoices and Records. If the Supplier uses cash basis accounting, the Supplier is required to account for Output Tax in accordance with the value received. If the Customer is registered for VAT purposes, the Customer is required to correct the tax return to reflect the value of Input Tax deducted on the purchased supplies. Example 13: A computer retail store offers a discount of 2.5% to Customers who pay for their products within 30 days of the date of issuance of the invoice. A Customer placed a large order for 100 computers for SAR 24,000 (excluding VAT) on 20th October, and a tax invoice was issued for this amount on the same day. VAT of SAR 3600 is declared as Output Tax by the Supplier in October, and the Customer deducts the same amount as Input Tax. (25)  Article (57), Unified VAT Agreement; Article (54)(1), Implementing Regulations of the VAT Law. The Customer pays the invoice on 10th November and, therefore, becomes entitled to the 2.5% discount amounting to SAR 600. The Customer requests that the Supplier issue a credit note in the amount of SAR 600. The amount of VAT charged on the original sale of the computers (SAR 3600) is reduced by SAR 90 (2.5% of SAR 3600). The Supplier must adjust the Output Tax previously declared by SAR 90. This adjustment must be made to the tax return for November. The Customer must also adjust the amount of Input Tax from SAR 3600 to SAR 3510. 6.2. Bad Debts If the Supplier uses the invoice basis and has not received payment for the supply of goods or services provided, the Supplier may reduce the amount of Output Tax calculated, subject to the following conditions: 1. The Supplier must have previously calculated the Output Tax in its tax return and paid it to ZATCA. 2. The Supplier and the Customer must not be related parties; 3. A period of at least 12 months must have elapsed since the date of the supply; 4. The Supplier must provide a certificate issued by a Certified Public Accountant in the Kingdom, evidencing that the debt has been written off from the commercial books. The Authority may accept any other supporting documentation if the Supplier is not required to appoint an auditor. 5. If the total amounts unpaid by the Customer exceed SAR 100,000, legal procedures must have been taken to collect such debts without result, and evidence thereof must be provided (such as issuance of a court judgment, evidence of the debtor’s bankruptcy, or a court order to commence any other formal recovery procedures). Where an adjustment is made due to payment by the Customer of an amount or partial amount, the amount of Output Tax must be increased again to reflect the additional amount received.