Is it legal to exempt tax when a member company issuing invoice to Owning Company? Will this be B2B transaction or not covered under e-invoicing?

XML and business rules
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Dear Mr. @Ankit_Tiwari

Is it legal to exempt tax when a member company issuing invoice to Owning Company? Will this be B2B transaction or not covered under e-invoicing?

Owning company demands an invoice when they purchase something from a child/member company, but they ask that VAT should be completely exempted. They are asking to use reason code VATEX-SA-OOS.

Please advise,

  1. Is this legal/allowed?
  2. Does this will fall under “Services outside scope of tax / Not subject to VAT”
  3. Should it be B2B or B2C transaction?

Best Regards.

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Dear Mr. @Ankit_Tiwari,

Eagerly waiting for your advice on this.

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Dear @OmarD ,
Are these two companies under same VAT Group? If yes, then transactions between members of a VAT Group are out of scope of E-Invoicing. System will reject E-Invoice where Seller VAT Registration Number and Buyer’s VAT Registration Number is same. You should not issue tax invoice for transactions between members of a VAT Group.

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Dear Mr. @Ankit_Tiwari,
Thank you for your prompt and detailed response. I appreciate the clarification. Could you please confirm if this also means that a B2C invoice should not be issued for such transactions between members of the same VAT Group?

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@OmarD when members of a VAT Group are assigned one single VAT Registration number, it becomes a single VAT taxpayer from ZATCA’s perspective. Transactions between members of VAT Group are therefore out of scope of VAT. You should not even generate simplified tax invoice as transaction is out of scope of VAT.

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