Many businesses assume VAT can be claimed as soon as a proforma invoice arrives, but that’s where costly mistakes begin.
In Saudi Arabia, VAT errors can trigger penalties of up to 50% of the unpaid tax, making invoice compliance critical for financial accuracy and audit safety.
Since proforma invoices are not legally valid tax invoices, claiming VAT incorrectly can disrupt cash flow and compliance. This blog explains when VAT becomes claimable, key risks to avoid, and how businesses can manage proforma and tax invoices correctly.
Proforma invoices often look almost identical to tax invoices, which is why many businesses mistakenly treat them as valid documents for VAT claims. They include detailed transaction information and even show VAT amounts, creating the impression that VAT is already applicable and claimable.
Several specific elements contribute to this confusion:
However, a proforma invoice is only a preliminary document. It confirms expected costs, but not a completed taxable transaction.
Now that you know why proforma invoices create confusion, the next step is to clearly understand what they actually are and what they are not.
A proforma invoice is a preliminary document issued by a seller before a transaction is finalized. It outlines the expected cost of goods or services, including estimated VAT, quantities, and payment terms, but it does not confirm that a taxable sale has legally occurred.
Businesses use proforma invoices to communicate pricing and obtain buyer approval before issuing the official tax invoice. It acts as a commercial agreement reference, not an accounting or tax document.
Proforma invoices are commonly used when:
To avoid costly VAT and accounting mistakes, it’s important to recognize the defining traits that separate proforma invoices from official tax invoices.
Understanding the core characteristics helps businesses avoid treating proforma invoices as tax invoices.
1. It Is Not a Legally Binding Tax Document
A proforma invoice does not create legal tax liability. It cannot be used to report VAT, claim input tax, or record revenue or expenses in official accounting books.
2. It Is Issued Before the Sale Is Completed
It is generated before goods are delivered or services are performed. The actual tax invoice is issued only after the transaction becomes legally taxable.
3. It Includes Estimated Transaction Details
A proforma invoice typically contains:
However, these values are provisional and may change before final invoicing.
4. It Is Used for Approval, Not Accounting or VAT Filing
Businesses use proforma invoices to:
But it should never be recorded in VAT returns or used to claim input VAT.
Now that you know what a proforma invoice is, let's answer the question you're really here for.
No. You absolutely cannot claim VAT on a proforma invoice in Saudi Arabia, or anywhere else.
Even if the document shows VAT amounts and payment details, it does not meet the requirements of a valid tax invoice under Saudi VAT regulations.
VAT becomes claimable only when a tax invoice is officially issued after the taxable supply occurs, meaning after goods are delivered or services are performed. Until then, the VAT shown on a proforma invoice is only indicative, not legally enforceable.
Now that the eligibility is clear, it’s important to understand the specific legal and operational reasons why proforma invoices are not accepted for VAT recovery.
There are clear legal and compliance reasons why proforma invoices cannot be used to claim VAT:
1. No Taxable Event Has Occurred Yet
A proforma invoice is issued before goods are delivered or services are completed. Since VAT applies only after a taxable supply occurs, there is no legal VAT to claim at this stage.
Example: If a business receives a proforma invoice for SAR 100,000 + VAT but delivery hasn’t happened, VAT cannot be claimed.
Saudi VAT regulations require specific details for VAT claims, including:
Proforma invoices are preliminary documents and do not meet these legal requirements.
Proforma invoices are not recognized in VAT returns or ZATCA e-invoicing. They cannot be used as proof for VAT recovery or audit compliance.
4. VAT Can Only Be Claimed After the Tax Invoice Is Issued
The correct sequence is:
Proforma invoice → Delivery/payment → Tax invoice issued → VAT becomes claimable. Only Step 4 makes the VAT legally claimable.
Although VAT cannot be claimed from a proforma invoice, the presence of VAT amounts on these documents often creates the impression that VAT has already been officially charged, which is not the case.
Yes, proforma invoices often include VAT, but this VAT is only informational, not legally chargeable or claimable. Its purpose is to show the buyer the expected total cost of the transaction, including the estimated VAT that will apply once the sale is finalized and the tax invoice is issued.
Including VAT helps businesses understand their full financial obligation in advance, especially when planning budgets, approving purchases, or arranging advance payments. Some more reasons for including VAT on a proforma invoice are:
Knowing that VAT shown on a proforma invoice is only preliminary, it’s equally important to understand when and why businesses receive these documents in real operations.
Proforma invoices are issued during the pre-transaction stage, before the supplier delivers goods or completes services. Their main purpose is to confirm pricing, payment expectations, and transaction terms so both parties are aligned before the taxable event occurs.
Businesses typically receive proforma invoices in situations where financial commitment or approval is required before execution.
Some of the common business scenarios where proforma invoices are used are:
Suppliers issue proforma invoices when they require partial or full payment before starting production or delivery.
Proforma invoices are widely used in import/export to declare shipment value and confirm purchase details before shipping. They help with:
Many organizations require cost approval before confirming purchases. A proforma invoice helps decision-makers review and approve expenses. This is common in:
When pricing depends on project scope, suppliers issue proforma invoices to confirm cost before work begins.
Once a proforma invoice is issued, it marks the beginning of the transaction, but it does not complete the taxable event.
A proforma invoice initiates the commercial and financial process between the buyer and supplier. However, several critical steps must be completed before the transaction is legally complete and VAT is claimable. Here is how the process typically unfolds:
At this stage, the proforma invoice is used strictly for transaction confirmation—not accounting. The buyer reviews pricing, quantities, estimated VAT, and payment terms to approve the purchase internally and release budgets. No VAT is recorded because the transaction is not yet legally complete.
If an advance payment is required, the buyer makes a full or partial payment based on the pro forma invoice. This payment confirms purchase intent and allows the supplier to proceed with order fulfillment. However, VAT remains non-claimable because payment alone does not create a taxable event.
This is the point where the transaction becomes legally taxable. Once goods are delivered or services are performed, the supplier fulfills its obligation, and VAT liability is triggered under VAT regulations.
After delivery or service completion, the supplier issues a tax invoice that includes mandatory compliance details, such as the VAT registration number, invoice number, confirmed VAT amount, and issue date. This document formally records the taxable transaction.
Only after receiving the tax invoice can the buyer record the expense and claim input VAT in their VAT return. The tax invoice also serves as mandatory documentation for audit validation and regulatory compliance.
Create compliant invoices, track proforma documents, and ensure accurate VAT handling with HAL ERP.
Claiming VAT at the wrong stage doesn’t just create accounting errors; it can expose your business to compliance violations and financial penalties.
Using a proforma invoice to claim VAT is considered a compliance error because the document does not legally confirm a taxable supply. Since VAT regulations require a valid tax invoice, premature claims can create regulatory, financial, and operational risks such as:
Avoiding VAT errors isn’t just about knowing the rules; it also depends on how correctly your accounting system handles proforma invoices from the start.
Proforma invoices should be treated as preliminary commercial documents. Since they do not confirm a taxable transaction, recording them incorrectly can result in premature VAT claims, inaccurate financial reporting, and compliance risks.
To ensure accuracy and compliance, businesses must follow a structured approach when handling proforma invoices.
Proforma invoices should be saved for tracking and procurement purposes. Link them to purchase orders and clearly mark them as "Proforma." Do not record them as expenses or claim VAT based on them.
Businesses use proforma invoices to approve purchases, confirm pricing, and process advance payments. Any payment made at this stage should be recorded as a supplier advance, not as a final expense or VAT claim.
Advance payments based on proforma invoices must be recorded as deposits or advances. VAT should not be recorded or claimed until the official tax invoice is issued.
After delivery or service completion, record the tax invoice as an expense and claim input VAT. Adjust any advance payments and link the tax invoice to the original proforma invoice for proper tracking.
Keep proforma invoices, tax invoices, payment records, and delivery confirmations organized. Only the tax invoice supports VAT claims and audit compliance.
Before final billing, businesses need a way to share pricing with customers without affecting financial records. HAL ERP provides a structured way to handle this safely within your system.
HAL ERP allows you to create and manage proforma invoices as non-accounting sales documents. This ensures you can communicate pricing and terms with customers while keeping your financial records accurate and unaffected.
Visit the website today and simplify your pre-sales and invoicing process with a system that keeps customer communication flexible while ensuring your financial records stay accurate and fully controlled.
Proforma invoices play an important role in sales and procurement workflows, but they do not create a taxable event and cannot be used to claim VAT. VAT becomes claimable only when a valid tax invoice is issued after goods are delivered or services are performed. Treating proforma invoices correctly ensures accurate accounting, proper VAT compliance, and audit readiness while preventing financial and regulatory risks.
Using a structured ERP system helps you manage proforma invoices separately from accounting, maintain clear document trails, and ensure VAT is recorded only when legally eligible.
HAL ERP helps you control your invoicing workflows, protect compliance, and keep your financial records accurate at every stage. Book a demo today!
A: Yes, you can pay the total amount, including the VAT portion, but you cannot claim that VAT back until you receive a valid ZATCA-compliant tax invoice. Treat the payment as an advance payment.
A: Both are preliminary documents, but quotes are issued earlier in the sales process with less commitment. Proforma invoices come after an agreement is reached but before the final transaction. In practice, the terms are often used interchangeably.
A: No. ZATCA's e-invoicing requirements only apply to tax invoices and simplified tax invoices, not proforma invoices. However, using electronic systems for all invoice types is good practice for consistency.
A: While not legally mandated like tax invoices (6-year retention), keep proforma invoices as part of your transaction documentation. They provide a useful audit trail and help explain payment timing.
A: No. Under Saudi VAT law, suppliers must issue tax invoices for completed taxable transactions. If a supplier fails to provide a tax invoice, this is a compliance violation you can report to ZATCA.
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