Saudi VAT Cash Accounting: Eligibility and Method Changes

Cash accounting can align VAT reporting with actual payments, but it requires eligibility and effective approval. It also postpones input deductions on unpaid purchases. Article 46 is a regulated reporting method, not a general right to omit unpaid invoices whenever cash flow is tight.

Test both calendar years and the compliance restriction

Article 46(1), pp. 42–43, permits the ordinary election where taxable annual supplies in the preceding calendar year do not exceed SAR 5 million and expected taxable supplies in the current calendar year also do not exceed SAR 5 million, subject to paragraph (2). Test both years, using taxable supplies rather than cash collections alone.

Paragraph (2) excludes a person who has received a ZATCA notice of non-compliance with VAT provisions during the preceding 12 months. Being below the turnover threshold is not the only condition.

Article 46(12) separately permits taxable government bodies to apply notwithstanding paragraph (1), subject to the article and notification of acceptance. It does not remove the normal threshold for every company with government customers.

Apply and implement the effective approval

Paragraph (4) allows a request with registration/tax identification or a later eligible application. Paragraph (7) allows ZATCA to seek evidence of annual supplies and reject an application where not satisfied about eligibility.

Paragraph (5) starts the change from the tax period following the period in which approval occurs, with notification of approval and effective date. A submitted application or an internal accounting policy change is insufficient to adopt the method early.

Dariba recommendation: retain the approval and effective period with the turnover evidence and opening balances. Do not confuse cash accounting with monthly/quarterly filing frequency, an extension to pay VAT already due or Article 44 import deferral; those have separate requirements.

Report paid amounts on both sides of the return

Article 46(3) includes output and input VAT on supplies only to the extent paid. A supplier using cash accounting must track customer receipts; it must also track payments for received supplies instead of claiming all purchase VAT immediately.

ZATCA’s Input Tax Deduction guideline, third edition May 2026, explains that a person using cash accounting only deducts input VAT in respect of amounts paid, alongside the other entitlement/evidence conditions. Payment does not cure restricted expenditure or an invoice issued to someone else.

An unpaid sale and an unpaid purchase can have opposite cash-flow effects. Evaluate the net benefit using actual customer/supplier payment patterns before applying, rather than assuming every eligible person benefits equally.

A Dariba illustration of partial payments

Original assumptions: an approved person makes one ordinary standard-rated sale for SAR 11,500 inclusive and receives SAR 4,600 in the relevant period. It also pays SAR 2,300 inclusive towards an otherwise wholly deductible standard-rated purchase, with valid evidence and no separate adjustment.

Output VAT on the received amount is SAR 600; eligible input VAT on the paid amount is SAR 300. The net from these two entries is SAR 300. The remaining SAR 6,900 sale balance represents SAR 900 VAT to be considered when payment occurs under the applicable method.

These are Dariba’s calculations, not a published ZATCA example. They assume clear payment allocation and the standard rate. Mixed-rate payments, settlement credits, barter, advances or unusual contract terms require their actual tax/valuation rules considered; a bank receipt total alone may not identify the relevant supply.

Reconcile the transition into cash accounting

Article 46(6) requires the first return after moving from invoice to cash accounting to include output/input adjustments reflecting unpaid taxable supplies made or received at the change date. This avoids treating balances already included under the old method as if they could simply remain there and later be reported again.

Prepare separate unpaid-sales and unpaid-purchases schedules with original tax treatment, prior return entries and payment status. Establish the adjustment using the actual outstanding amounts and applicable rate, rather than reversing every invoice dated before the approval.

Dariba analysis: the transition is a reconciliation exercise, not a refund of every historic unpaid balance regardless of entitlement. Preserve the evidence showing the original entry and the subsequent treatment when collected or paid.

Monitor loss of eligibility and voluntary exit

Paragraph (8) requires notice within 20 days of becoming aware that eligibility has ceased, through an application to use invoice accounting under Article 45. Forecast turnover and compliance events therefore need monitoring after approval.

Paragraph (9) allows an application to return voluntarily to invoice accounting after using cash accounting for at least two years. The two-year condition concerns that voluntary route; it is not permission to remain ineligible until two years expire.

Paragraph (10) addresses commencing invoice accounting from the next tax period and ZATCA notification of the change/effective date. Retain the actual notice and implement its period rather than choosing an arbitrary day in the middle of a return.

Reconcile the transition back to invoice accounting

Paragraph (11) requires the first return after moving back to invoice accounting to include output/input adjustments for taxable supplies made/received but unpaid at the effective change. Reconcile the balances so payment later does not cause duplicate reporting or deduction.

Track each invoice’s method history, adjustment and remaining balance. If a customer later defaults, analyse the actual bad-debt conditions and any previous tax entry before attempting another reduction. Cash accounting and bad-debt relief are different mechanisms.

See credit/debit notes for actual consideration changes and the input recovery guide for entitlement. A method change does not itself create a new supply or a second tax invoice for the same commercial transaction.

Preserve invoices, payments and the method audit trail

Cash accounting does not abolish Articles 53 and 66’s invoicing/record requirements. Keep actual supply invoices, payment allocations, approval, effective dates, transition schedules, input attribution and return calculations.

The ordinary Article 45 calculation, Article 46 election and separate import rules should be configured coherently. In particular, do not assume every customs import liability waits for payment to the overseas goods supplier merely because the importer uses cash accounting.

Dariba recommends testing the method with actual opening balances and common partial-payment cases before the first affected return. A defensible return explains both the legal approval and how each payment or transition adjustment reached the reported amount.