Moving Towards E-invoicing in Saudi Arabia
With Saudi Arabia having successfully introduced Phase 1 of E-invoicing on December 4, 2021, there’s a buzz that other GCC countries may follow soon. Here’s all you need to know about E-Invoicing, its relevance, phases and guidelines for taxpayers.
The Zakat, Tax and Customs Authority (ZATCA) rolled out regulations mandating businesses to adopt an E-invoicing process in two phases. The first phase of E-invoicing means the complete cessation of using and issuing handwritten invoices. Now onwards, all taxpayers are obliged to generate electronic invoices using compliant E-invoicing systems. Manual and hand-written invoices through text editors or number analysis applications will no longer be valid. Furthermore, you cannot edit an E-invoice once it is electronically issued. You can only issue electronic notes (containing VAT-compliant debit and credit notes) with reference to the original invoice.
Let’s explore the relevance of E-invoicing and the intention behind roll out of the new regulations:
- E-invoice: An electronic invoice is an invoice that is issued, transmitted and received in an electronic format.
- E-invoicing: E-invoicing is the process of generating invoices in a digital format, so you can issue and store them electronically.
The purpose of introducing E-Invoicing
- The reason behind rolling out these regulations is to enable businesses to function with more efficiency and transparency. The E-invoicing Project (FATOORAH) is expected to produce a major positive impact on the Saudi economy by bringing down hidden economic transactions and promoting fair competition.
- Trade functions become more transparent with all business data integrated into the ZATCA system. With every transaction being authorized on the ZATCA portal, fraudulent activities and fake invoices will be also easily traced down. Additionally, the portal presents a centralized database for easy audit. This is a major relief for Tax Authorities as it helps them get rid of the cumbersome audit activities with all information at their disposal.
Key benefits of E-invoicing
- The real time issuance of invoices makes the entire process faster for sellers and buyers. Hence, a better experience for both parties.
- Data is securely stored, and records will be error-free as compared to paper entries.
- The streamlining of E-invoicing systems reduces slip-ups and other inconveniences for business owners.
- Payments are now faster, and documents can be retrieved easily via the digital platform.
- With a proper system for validating invoices, there will be fewer chances for fraudulent and suspicious activities, leading to fair competition and improvement of trade.
The guidelines for E-invoicing in the KSA
- The new E-invoice regulations will apply to all taxable goods and services subject to VAT (whether standard or zero rate).
- All VAT-registered business owners (except non-resident taxable people) are supposed to comply with the E-invoicing policy and adopt the new process. It also applies to the third party issuing a tax invoice on behalf of a taxable person. For instance, if you are an accounting firm and issuing invoices for a manufacturing company, you must adopt these E-invoicing regulations.
- E-invoicing is compulsory for B2B, B2C and B2G transactions. Make sure that you provide a printed copy too while issuing an E-invoice to a buyer.
- The E-invoices must be in Arabic. You may translate the details into another language, but it is mandatory they are issued in Arabic.
The process of E-Invoicing is planned in two phases:
Phase 1- December 4, 2021
- The initial phase is about issuing and storing E-invoices. It includes turning credit and debit notes into electronic notes.
- Every business must use an E-invoicing system compliant with ZATCA. The electronic billing portal can be either an online cash register or an E-invoice software installed on your computer or a cloud-based software.
- All E-invoices must have all the mandatory details- name of the seller, VAT registration number, the time of issuance, the total VAT amount, and the invoice value including VAT.
- Please note during this phase, there is no need to share data and invoices with ZATCA.
Phase 2 – January 1, 2023
- From 1st January 2023, phase 2 will be implemented to ensure the seamless integration of E-invoicing data into the ZATCA system.
- This phase requires technical integration of the E-invoicing system with ZATCA’s portal from 1st January 2023. ZATCA will validate and verify all transactions.
- Moreover, E-invoices must be issued in specific formats (XML and PDF/A-3 with embedded XML).
- Ensure the system can be securely connected with external software through APIs (Application Programming Interface), create a UUID (Universally Unique Identifier) and a digital signature. It should be able to differentiate an E-invoice, a hash and a cryptographic stamp with a sequential number and have anti-tampering features.
The process of E-invoicing
The good news is E-invoicing is not much different than regular invoicing processes. The only discerning difference is that it will be done with more transparency and safety.
Here’s what you are required to do for every transaction:
- Use a compliant E-invoicing system to generate the E-invoice with all the required fields.
- Avoid modifying invoices—instead issue a debit/credit note and link it to the original invoice. Ensure you don’t delete any E-invoices once they’re issued, as they will be needed for future reference.
- Issue a copy to a buyer. By phase 2, you will have to send it to ZATCA and send it to your buyer after the portal validates the invoice.
- Save the invoice for future reference. A cloud-based accounting solution is a preferred choice with easy storage and automatic compliant features.
Types of E-invoices
- These kinds of invoices are for B2B or B2G transactions and are generally used for claiming input VAT deduction by buyers. In phase 1, these invoices will have to be shared with buyers in the required format. In phase 2, these invoices can be shared with buyers only after being cryptographically stamped and cleared by ZATCA.
- In the case of VAT registered buyers, you must add their VAT registration number on the invoice and a QR code. View a sample Invoice.
- These invoices are issued for the B2C transaction at the point of sale. Buyers don’t need simplified E-invoice for input VAT deduction. Nevertheless, while issuing simplified E-invoices, your system must generate a QR code to validate them.
In phase 1, all you must do is share the simplified e-invoices with your customers. However, in phase 2, these invoices will have to be shared with ZATCA within 24 hours of issuing them. Both these invoices can be either self-billed or billed by a third party. If the invoice is self-billed, you shall be held accountable. An electronic marker will indicate whether the invoice is self-billed or billed by a third party.
|Transaction||Type of E-invoice to be issued|
|Taxable supplies priced at SAR 1,000 or more||Standard E-invoice|
|Taxable supplies priced less than 1,000 (Excluding exports)||Standard and Simplified E-invoices|
|Taxable supplies (Excluding exports) to non-taxable persons||Simplified E-invoice|
|Zero-rated supplies priced at SAR 1,000 or more||Standard E-invoice|
|Exports of goods||Standard E-invoice|
|Intra-GCC supplies||Standard E-invoice|
|Nominal supplies (For audit purposes)||Standard E-invoice|
We hope this article has helped you gained some clarity on E-Invoicing procedures. For further clarifications you may kindly get in touch with our Tax Experts.